Stricter real time invoice reporting and transfer price fines from August 1!

One of the most important changes in the summer tax package is that from August 1, 2024, default fines will double. On the one hand, the tightening affects the general fines rule (including the fines relating to the obligation to provide real time invoice reporting and transfer price data), and on the other hand, it applies to certain outstanding omissions (notification of employees; invoice - receipt issuance, failure to comply with the document retention obligation).

The increase in the level of fines reflects both the inflation of money and a more radical intention of economy whitening. Furthermore, the increase of fines is also in line with the recent tendency according to which the Hungarian Tax Authority has been imposing more and more fines, and in addition, the fines and sanctions already account for a larger proportion of the amount charged to taxpayers than the tax shortage itself.  The legislator therefore not only trusts in the deterrent and preventive effect of the increased fines, but the Tax Authority will also want to collect these amounts rigorously!

Taxpayers can therefore count on the increased willingness of the Tax Authority to impose fines in priority control areas (such as real time invoice reporting, transfer price checks, checking employee notifications), where the increased fines may even multiply. In connection with data reporting, notifications, issuance and storage of documents, it is worthwhile to review and streamline the processes in order to prevent fines. The increase in fines can even negatively affect the taxpayer status, and paying large fines in one lump sum can be a problem for businesses, so we can count on an increase in payment facilitation procedures.

Doubling penalties

From August 1, 2024, taxpayers can count on radical default fines:

• The general penalty for failure to comply with certain tax obligations (e.g. data provision, declaration, notification of changes, etc.) for individuals has increased from HUF 200,000 to HUF 400,000, while for companies it has increased from HUF 500,000 to HUF 1,000,000;
• If the employer employs an unregistered employee, it will be fined HUF 2,000,000 instead of HUF 1,000,000;
• If the taxpayer fails to comply with the invoice, receipt issuance, or document retention obligations - even by not properly attaching a document requested by the Hungarian Tax Authority during a tax audit -, they can be fined up to HUF 2,000,000 instead of the previous maximum of HUF 1,000,000.

In the case of some omissions, the strictness of the Hungarian Tax Authority applies directly, in other cases indirectly!

In the case of fines, we distinguish between two category of cases:

• in one case, Hungarian Tax Authority is obliged to call the delinquent taxpayer several times before imposing a fine. So in the case of non-compliance with the obligation to notify, notify changes, declare and provide data, the Hungarian Tax Authority cannot immediately impose a fine, the sanctioning must be preceded by several call  for missing information. The Hungarian Tax Authority does not yet threaten to impose a fine in the case of the first deficiency, the reduced fine imposed in the second deficiency can even be waived, but in the third deficiency the authority will impose a maximum fine, which cannot be reduced!
• in special cases such as failure to register, employment of an unregistered employee and EKAER notification, etc. the Tax Authority does not have to warn the taxpayer in advance, so it can even directly "offer" them an increased fine. Therefore, the tightening of fines will, above all, pose a direct threat to companies in these cases. An interesting exception is that the Tax Authority can immediately impose a default fine even for a numerical error in the return that does not result in a tax difference, so special attention must also be paid to the accurate administration of tax returns in the future!

Which areas are mainly affected by the tightening of fines?

Employment of employees

In cases involving the employment of undeclared employees, from August 1, the Tax Authority may impose a fine of HUF 2,000,000 per employee without prior notice.

In the case of companies working on large construction projects and employing guest workers extra attention must be paid to legal compliance to avoid administrative difficulties leading to large fines. The Tax Authority regularly publishes on it’s website the data of those employers who fail to report their employees, so in the event of these omissions, companies must also expect negative publicity.

Those who fulfill their reporting obligation late, incorrectly, incompletely or with false data are still subject to the normal fine, not the increased amount.

Registration obligation of foreign enterprises in Hungary

The failure to log in does not only affect classic "black marketeers", but e.g. those businesses providing cross-border services from abroad, which, either by administrative error or through insufficient knowledge of the law, are not aware that they are required to obtain a Hungarian tax number or are not aware that they have a Hungarian establishment.

Until now, the failure to register has been heavily fined by the Hungarian Tay Authority (HUF 1,000,000) and it was also possible to impose the fine directly without making up for the deficiency, and if the Tax Authority determined a tax deficiency with an estimate, it was also possible to impose a tax fine of 200%.

With this kind of strictness, e.g. distance selling webshops, as well as companies operating in specific sectors (e.g. financial) and providing cross-border services, may face this, especially given that foreign webshops feature prominently in the tax audit plan of the Hungarian Tax Authority, and moreover, the Hungarian Tax Authority will be able to get a picture of their turnover from this year onwards on the basis of the data provided by financial institutions. Last year, in 92% of inspections involving electronic traders, the Hungarian Tax Authority made incriminating findings at the expense of taxpayers.

A scone without a receipt while at the beach?

Since the legislative changes will come into effect already in the summer season, it is important for tourism and hospitality companies to pay attention, because if they do not comply with their invoicing obligation, the Tax Authority can impose a fine of HUF 2,000,000 per invoice / receipt. Those who use e-cash register must also take into account the tightening of the fine rules.

Non-fulfillment of the obligation to provide real time invoice reporting data

In the case of real time invoice reporting data provision, the previous fine of HUF 500,000 per invoice will increase to HUF 1,000,000 from August. It can also be seen from the tax control plan of the Hungarian Tax Authority, and the tightening of the e-VAT system, that in the future the Tax Authority will pay special attention to checking the data quality of the real time invoice reporting data service and its completeness, which can mean significant fines for companies. Last year, approximately HUF 30 billion flowed into the budget from the Hungarian Tax Authority audits aimed at monitoring the fulfillment of real time invoice reporting obligations, and these audits will obviously be a significant source of revenue for the budget in the near future as well.

Violation of rules related to transfer pricing

It is already known from earlier that from the tax year 2023, the amount of the transfer pricing fine for each violation of the transfer pricing documentation obligation has increased to HUF 5,000,000 per kept record, and to HUF 10,000,000 (from HUF 2,000,000 and HUF 4,000,000) in case of repeated violations.

In case of violation of the obligation to provide information in the corporate tax return, instead of the previous fine of HUF 500,000, a fine of HUF 1,000,000 must be calculated.

Affiliated companies are in the focus of the the Hungarian Tax Authority’s interest this year as well, and the Tax Authority's assessment statistics are "impressive" in these investigations: in 75% of the audits, the audit concluded with an incriminating finding (this figure is 80% in the automotive sector).

Key penalty provisions related to the global minimum tax

For many multinational companies, this year is already taking place in the spirit of preparation for the Globe. In this connection, it is also worth noting that the Tax Authority may impose a default penalty of HUF 5,000,000 for failure to comply with the Globe reporting obligation, or for late compliance, while the Tax Authority may impose a default penalty of HUF 10,000,000 for failure to comply with the tax return obligation, or for late, incomplete, incorrect or untrue data.

Some things never change

The amendment only affects lump-sum fines, so in cases where a percentage of the fine is imposed - for example, for tax deduction, tax collection or cash payment - the old rules remain.

The amount of the fine that can be imposed for failure to comply with the requirement to deposit and publish the report will not change either, the Tax Authority may still impose a fine of HUF 200,000 following failure to comply with a request to submit a report, but in this case persistent failure may even lead to the cancellation of the tax number or the declaration of the company as dissolved.

Increased financial burden

Increased fines can impose a significant financial burden on businesses, and a change in taxpayer status can also deprive them of the benefits of being a reliable taxpayer.

Fines can be reduced through an appeal procedure, or more favourable payment terms can be negotiated through a payment discount procedure. 

VGD Hungary's experienced experts can help you prevent fines from being imposed,
reduce already imposed fines, and reschedule payment. Feel free to contact our experts who are also experienced in tax representation matters!

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This newsletter provides general information and does not constitute advice.