Another measure against aggressive tax planning constructions: DAC 6 will enter into force in Hungary on 1 July

On 1 July 2020, the Directive Nr. 2018/822/EU of the Council of the European Union (“the Directive”) will also enter into force in the Hungarian legal system, which in professional jargon is referred to only as ‘DAC 6’ (as this is sixth amendment to the Directive on Administrative Cooperation). The most important details of the regulation are briefly presented below.

The provisions of the Directive are incorporated into the Hungarian legal system by Act XXXVII of 2013 on certain rules of international administrative cooperation related to tax and other public charges. They will be transposed by the amendments to the Act in force from 1 July (the novelties mainly be found in Chapter V/F and Annex 4 of the Act).

The DAC 6 regulation – and thus also the Hungarian act – stipulates the obligation to provide data in connection with cross-border tax constructions. Crossing the border as a condition is fulfilled, if any country other than Hungary (more precisely, a person or organization resident there) is also involved in the tax scheme, consequently this obligation should not be applied to schemes which have only domestic, i.e. Hungarian participants. The reporting does not cover all types of taxes: value added tax, excise duty and contribution are exceptions. In the case of Hungarian taxpayers, as a general rule, the consignee (i.e. to whom data must be provided) is the Hungarian Tax Authority (henceforth, after its Hungarian abbreviation: “NAV”), but due to the specifics of the scheme, the data may need to be reported to another country’s authority. The deadline for submitting data is 30 days, and NAV will communicate the received data to the relevant authorities of all EU Member States involved in the tax scheme in an automatic exchange of information and on a quarterly basis.

Of course, the obligation to provide information does not have to be fulfilled for each cross-border construction: only those who have at least one of the characteristics specified by law need to be provided. To determine this, a two-step “test” must be performed on the scheme, the first step of which is to examine whether its main purpose (or one of the main purposes) is achieving any tax advantage or not. If so, of course, the construction must be reported. However, if not, it may still be necessary to provide data due to other characteristics (e.g. transfer pricing).

The legislation does not impose the obligation to provide information primarily on taxpayers participating in and benefiting from the tax scheme, but on those who develop the tax scheme, i.e. mainly tax advisors. In the absence of such persons, everyone is expected to recognize: he / she is taking part in or supporting such a scheme. That is, in the end, auditors and even accountants may be obliged to report. Should the taxpayer elaborates the details of the scheme “in-house”, the taxpayer itself is the person, of course, who obliged to report.

The law also prescribes exactly what data must be reported to NAV, e.g. the name, tax number (in case of natural persons, tax identification number) of the persons involved in the creation of the scheme, details of why the scheme is subject to the reporting obligation (based on the test already mentioned) and the value of the scheme.

In the event of late, incorrect, incomplete or untrue data submission, NAV may impose a fine of up to HUF 500,000 (approx. EUR 1,400) on the person obliged to provide the data. However, the fine may be up to HUF 5 million (approx. EUR 14,000) if the obligor does not provide data in accordance with the provisions of the law when the NAV specifically calls on it.

And although the law will not enter into force until 1 July 2020, it is important that it provides for a retroactive obligation: by 31 August 2020, all constructions should be reported, in connection which the first step of the scheme was implemented between 25 June 2018 (the adoption of the Directive) and 30 June 2020.

A recent change is that, as a result of the economic downturn caused by the COVID-19 virus in 2020, the EU has decided to postpone the reporting deadline in the Directive (which is thus not 30 August but 30 November). However, on the one hand, this does not affect the entry into force of the regulation, which is still 1 July 2020, and on the other hand, the Hungarian legislator has not amended the relevant law, so the original deadline, i.e. 31 August, remains in the Hungarian legal system.

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Should you have any questions regarding the contents of this newsletter, or should you may not be sure whether your company is affected by the above-mentioned data provision obligation, VGD Hungary’s tax advisors are gladly at your disposal!