Radical changes in the online data reporting regulations
An autumn tax package, which was accepted in December 2019, has radically expanded Hungarian taxpayers’ online invoice reporting obligations.
Under the regulations, prior to 1 July 2020 taxpayers were obliged to provide invoice data to the Hungarian Tax Authority (HTA) about the transactions between domestic taxpayers if the charged VAT amount of the invoice exceeded HUF 100,000. The data must be reported electronically, without human intervention, in a pre-defined structure and immediately, once the invoice has been issued. Furthermore, customers have similar obligations that require them to file a domestic summary report (so-called ‘M-sheets’) included in the VAT return.
Changes in two steps
Beginning 1July 2020 the data on invoices issued to all resident taxpayer customers must be reported to the HTA regardless of their value.
Due to difficulties companies had with the electronic system, the HTA allowed a grace period until 30 September with regard to domestic purchase transactions that otherwise had to be reported since 1 July 2020. To qualify for this concession the taxpayer had to register for the online invoice system.
The significant changes to the invoicing reporting obligations will be applicable from the beginning of next year, in other words, from 1 January 2021.
The reporting obligations will cover all transactions that will be invoiced according to Hungarian rules, in other words, those where the partner is an individual, and even foreign transactions. The only two exceptions are if the transaction is fulfilled through the MOSS system in another EU Member State or is with a non-taxable person in another EU Member State.
Needless to say, the changes from 2021 will be a challenge for businesses that currently are not obligated to report invoice data to the HTA, because this will be a new type of obligation for them. However, the changes effect even those companies that have already developed the necessary software, as such software must be adapted to satisfy the criterion set out in the new regulations. So, it is important that taxpayers start the preparation for the new requirements in time.
To help with the preparation, the HTA developed a mobile telephone application for issuing invoices. This application can complement the NAV Online Invoice system if invoices are not issued by the taxpayer using its own invoicing software. As well, the HTA has developed invoicing software that is available to companies.
Why the changes?
According to the legislator, there are several reasons for introducing the new regulations.
First, these changes should aid in reducing the rate of tax evasion. Based on the experiences to date, the regulations have been successful in doing this. According the Hungarian Information Centre (per a statement of 10 September 2020) in 2013 the Hungarian tax evasion rate was 21%; by 2019 the rate was reduced to 6.6%, which is well ahead of many Western European countries’ anti-tax evasion efforts.
Another reason for the new regulations is that for four years, the Hungarian the tax office has been preparing draft personal income returns for private individuals based on the available information. With the information from the online reporting system, this type of tax office service could become available to hundreds of thousands of businesses in connection with their VAT returns as early as the spring of 2021.
Given all the data that will be collected, the HTA expects to be able to prepare the majority of tax returns, thereby reducing the administrative burden on taxpayers.