Economy
PwC Newsflash - Hungary's closely observed taxpayers 2006
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The Tax Authority has identified new targets for this year, but it also continues to focus on areas that received special attention from inspectors in the past.
The bulletin states that the Tax Authority will place great emphasis on monitoring taxpayer history. Specifically, in order to identify businesses that are established for tax evasion purposes, they will focus on newly established companies, companies relocating their registered office and companies sharing the same address with others.
In ownership changes, the Tax Authority will pay special attention to the tax treatment of the sale and purchase of business quotas. Businesses that have generated losses for a prolonged period and those that fail to file tax returns will also be audited more frequently.
Social security payments will be another priority area this year. After the method of declaring contributions changes on 1 April 2006, the likelihood of being audited will grow for businesses that fail to make the required declarations. Inspectors will pay greater attention to whether employers have properly complied with their social security and related personal income tax obligations. When the grace period that has been announced with respect to the reclassification of contractors' agreements as employment contracts expires after the first six months of the year, these agreements will again be scrutinized from a labour law and social security perspective. Efforts to eradicate blackmarket employment will continue, especially in the construction industry.
Certain taxpayers can expect to receive the Tax Authority's attention due to their type of activity. Businesses trading in pharmaceuticals will be priority targets because of the government drug subsidy program. Computer hardware and software distributors will remain a focus of attention.
Telecommunications, IT, advertising, media and financial consulting companies will have a higher chance of being selected for a tax audit. The Tax Authority will pay special attention to checking the application of the reverse charge mechanism that was introduced in waste trade on 1 January 2006. Companies selling vehicles that are subject to the registration tax will also be considered high-priority targets.
In a new development, the Tax Authority has determined regional profitability levels in three industries (distribution of construction materials, commercial hospitality and vehicle repairs). Businesses with a profitability rate that is lower by 50% than the level determined by the Tax Authority will receive special attention.
The Tax Authority continues to scrutinize intra-Community supplies and purchases and third country export and import transactions. The related audits will make use of control information from EU Member States and the Hungarian Customs Authority.
The personal income tax audits will mainly focus on people who earn income that is taxed separately, who receive a tax allowance on housing loans or who have terminated an insurance policy that was eligible for a tax allowance.
Transfer pricing issues, tax liabilities associated with real property transactions and “chain invoice" transactions are also expected to receive greater attention.
In addition to targeted businesses, any entity can be selected at random for an audit. Five per cent of the audits will be conducted on this basis.
The bulletin states that the Tax Authority will place great emphasis on monitoring taxpayer history. Specifically, in order to identify businesses that are established for tax evasion purposes, they will focus on newly established companies, companies relocating their registered office and companies sharing the same address with others.
In ownership changes, the Tax Authority will pay special attention to the tax treatment of the sale and purchase of business quotas. Businesses that have generated losses for a prolonged period and those that fail to file tax returns will also be audited more frequently.
Social security payments will be another priority area this year. After the method of declaring contributions changes on 1 April 2006, the likelihood of being audited will grow for businesses that fail to make the required declarations. Inspectors will pay greater attention to whether employers have properly complied with their social security and related personal income tax obligations. When the grace period that has been announced with respect to the reclassification of contractors' agreements as employment contracts expires after the first six months of the year, these agreements will again be scrutinized from a labour law and social security perspective. Efforts to eradicate blackmarket employment will continue, especially in the construction industry.
Certain taxpayers can expect to receive the Tax Authority's attention due to their type of activity. Businesses trading in pharmaceuticals will be priority targets because of the government drug subsidy program. Computer hardware and software distributors will remain a focus of attention.
Telecommunications, IT, advertising, media and financial consulting companies will have a higher chance of being selected for a tax audit. The Tax Authority will pay special attention to checking the application of the reverse charge mechanism that was introduced in waste trade on 1 January 2006. Companies selling vehicles that are subject to the registration tax will also be considered high-priority targets.
In a new development, the Tax Authority has determined regional profitability levels in three industries (distribution of construction materials, commercial hospitality and vehicle repairs). Businesses with a profitability rate that is lower by 50% than the level determined by the Tax Authority will receive special attention.
The Tax Authority continues to scrutinize intra-Community supplies and purchases and third country export and import transactions. The related audits will make use of control information from EU Member States and the Hungarian Customs Authority.
The personal income tax audits will mainly focus on people who earn income that is taxed separately, who receive a tax allowance on housing loans or who have terminated an insurance policy that was eligible for a tax allowance.
Transfer pricing issues, tax liabilities associated with real property transactions and “chain invoice" transactions are also expected to receive greater attention.
In addition to targeted businesses, any entity can be selected at random for an audit. Five per cent of the audits will be conducted on this basis.
