e-VAT from 2024: the transition can be challenging, start preparing early!

In our previous newsletter we referred to the results of the public consultation on the introduction of e-VAT. In this newsletter, we report on our findings from a recent consultation with the tax authorities in which VGD Hungary also participated.

e-VAT will enable taxpayers to fulfil their tax obligations more efficiently and easily in the future. According to the planned timetable, a test run is expected to start in autumn 2023 with the live commissioning in the first half of 2024. The change will affect everyone, but in particular, foreign companies using foreign accounting software will need to pay close attention to the timing and transition.

VAT return options

In future, there will be three ways to submit a VAT return:

1. via the ÁNYK client program in the usual way,

2. via the e-VAT interface by accepting and completing the draft VAT return prepared by the tax authority,

3. via the machine-to-machine (M2M) connection (by setting up a connection between the accounting software and the tax administration's system)

During the first period, taxpayers will be able to choose the option that best suits their specific operational characteristics, i.e. they will not be obliged to switch to e-VAT or machine-to-machine at the time of implementation. In the longer term, however, the phasing out of submissions via the ÁNYK client program and the introduction of M2M and e-VAT is expected.

Automation will not completely eliminate human intervention, as the draft return will only become a return once it has been finalised and approved by the taxpayer.

Although only fine-tuning of the specification is expected, the system will probably only be finalised after the test run and the live operation, following feedback from the users (e.g. the treatment of self-revisions is not yet solved).

The new system is expected to simplify the tax return process while making it easier for the tax authorities to perform tax audits.

The preparation of the draft e-VAT return and the validation prior to the submission of the return based on the M2M connection will be carried out through the use of the following databases available to the tax authority:

• online invoice database;
• online cash register data;
• goods import data;
• tax account data;
• "blacklisted" taxpayers' data.

e-VAT draft vs M2M connection? Pros and cons

Companies that should consider the use of e-VAT drafts are those that:

• typically carry out transactions that are included in the above-mentioned NAV databases (i.e. they do not have e.g. inter-Community transactions);
• have a relatively small number of transactions (checking the draft e-VAT return will not cause them significant additional administration);
• are not subject to double-entry bookkeeping (e.g. VAT registered taxpayers);
• only carry out taxable economic activities. Alternatively, they do not have incoming invoices that could be subject to VAT deduction restrictions.

For these taxpayers, the draft return prepared by the tax authority can be a great relief; its data can even serve as a VAT analysis.  In this case, the draft should be checked and approved by the client before it becomes final.

The M2M connection enables the taxpayer's accounting software to communicate with the tax authority’s system, making this solution primarily suitable for companies:

• whose accounting software is capable of establishing a machine-to-machine connection through software development or the purchase of an additional module (existence of a standard data structure, mapping of tax codes used etc.);
• who have a transaction volume and transaction complexity of such magnitude that the benefits of machine-to-machine connectivity outweigh the development costs;
• for whom the preparation of tax returns is a longer process, where there is time to control and make decisions on each part of the process.

Benefits:

1. the accountant works in their own system;
2. the M2M connection can be flexibly integrated into the accounting software with no mandatory insertion point;
3. transaction-based reporting, the number of administrative errors can be effectively reduced (control, support for tax authority control);
4. the tax authority performs preliminary technical and business validation (pre-validation of VAT analysis, generation of error lists, notification of discrepancies before VAT return submission, e.g. the system warns the taxpayer if there is an error in the file and does not allow the submission of an incorrect return);
5. system errors and uncertainties in the accounting software can be detected (e.g. double deduction of VAT on the same invoice, deduction of VAT on an invoice issued to the name of another company in the same group of companies);
6. the possibility to query summary reports;
7. the system stores data that support automated data processing or other business processes (retrieving tax code summaries for an account, downloading web analytics, etc.);
8. the sample XML contains the VAT analysis data, so that the tax authorities can no longer request these during tax audits; only additional supporting documents (e.g. contracts) can be requested. This can reduce the administrative burden for businesses during tax audits;
9. an xml approval can be initiated via machine-to-machine communication, and taxpayers can approve the VAT return via an associated mobile app.

Challenges:

1. understanding how the system works, correct data upload, data cleaning, and data structuring;
2. creating a standard data structure - linking taxpayers’ tax codes to standard tax codes;
3. processing and interpreting response messages from the tax authority.

As can be seen from the above, applying the different VAT return options requires careful planning and personalised choices.

In this respect, it is recommended to consult an expert, a software developer, who, with his knowledge of both the company's internal processes and the external tax environment, can effectively assess the advantages and disadvantages of the transition and thus be able to recommend the most optimal solution for the taxpayer. VGD Hungary's team of experts is ready to assist the clients in the assessment of the transition options and the subsequent implementation.

21. march, 2023

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Should you have any questions regarding this newsletter, the tax experts of VGD Hungary will be pleased to assist you.

This newsletter provides general information and does not constitute tax advice.