Hungary’s Real-Time VAT Reporting Begins July 2018

Indirect taxes contribute to almost half of Hungary’s total tax revenues, making accurate, efficient VAT collection critical to keeping the government running. With a VAT Gap (the difference between the amount of VAT actually collected and total VAT owed) of 13.7%, well above the E.U. median of 10.9%, Hungary’s tax authority has implemented several efforts to curb tax evasion and increase revenues in recent years. Some of these measures have included electronically monitoring the movement of goods, fiscal cash registers to better track retail transactions and lowering threshold for reporting domestic recapitulative statements for invoices from 2 HUF to 1 million. These efforts are proving effective; Hungary has reduced its VAT Gap by 10.7 percentage points since 2013.

Now, the country is turning its focus to business-to-business transaction level reporting with the implementation of real-time VAT reporting starting in July 2018.

Draft e-invoicing regulation, published this summer by the Ministry of National Economy, gives insights into the legal and technical details businesses need to understand in order to become compliant. Below are some of the important aspects of the new law that will impact companies operating in Hungary:

• 24-hour reporting timeline – All VAT-registered businesses must submit domestic business-to business (B2B) sales invoices with a VAT amount equal to or more than 100,000HUF (~320€) to the NAV, Hungary’s Tax and Customs Administration, within 24 hours of issuing the invoice.
• XML format required – The data should be submitted in XML format through the government web portal, referred to as KOBAK. A draft of this XML schema is available in the draft ordinance. Use of Microsoft Excel, Word or PDF submissions is not acceptable.
• Significant penalties – Failure to report invoices in real-time could result in penalties of up to 500,000HUF (~1,600€) per invoice.

The implications of real-time VAT reporting in Hungary

The new mandate creates a significant compliance burden for businesses. Given the 24-hour reporting window, the requirement to record, store and connect the confirmation code to the respective invoice, and the potentially large number of impacted transactions means that tax, compliance and IT departments could face significant challenges. An automated and intelligent solution is the only way businesses can efficiently comply with this new mandate and future mandates yet to come.

The new reporting requirement will also provide the government with a significant amount of data that it will use to help combat VAT fraud and increase revenue collection. This likely means an increased audit exposure for companies in Hungary. Simply put, with this new information at their fingertips,the tax authority will be able to more easily identify errors and data discrepancies, initiate audits, and make tax and penalty assessments.

Businesses should prepare now

Limited testing of XML files is already possible, and a more formal and advanced test period is expected to begin on January 1, 2018. Companies should take advantage of this test period so that they are ready for the 2018 deadline, avoid potentially sizeable fines for noncompliance and add value to internal processes.

Businesses in Hungary also need to consider how they will comply with this new requirement. They should evaluate whether to continue along a reactive path, using internal IT, tax and compliance resources to ensure compliance, or whether the time is right to consider an intelligent solution. Key questions to ask include:

• Is our compliance approach capable of addressing this new mandate?
• Can we ensure continual compliance as requirements change?
• Are we positioned to adapt as new countries adopt a similar mandate?