The general Hungarian VAT rate, 27%, is one of the highest in the EU 28 member countries. Therefore, dealing with transactions triggering VAT payment obligation can be a gold mine for certain businesses in Hungary in the black/grey economy even if the risk is high in the case of tax evasion. Usually, the case is that these types of black businesses look at first hand as normal taxpayers. They have proper tax numbers registered with Hungarian authorities, they regularly submit financial statements, VAT and other tax returns. They are never late in paying taxes and they issue proper invoices.
It is frightening that these black businesses are often intermediaries between two reputable multinational companies. They usually offer competitive prices below the usual market price. In the majority of cases they are retailers, acquiring and selling branded goods between two or more EU or non-EU member states trying to utilise the slow information flow between the tax offices of EU member states (or outside the EU). After years when the tax authority randomly or intentionally inspects them, their money swept away from their bank accounts, their offices are closed, their home page, if any before, cannot be found. In addition, in Hungary the tax authority inspection ratio is relatively low, therefore, it can be the case that they have never been reviewed.
The Hungarian government introduced various rules to improve their VAT review success as it is said that billions of forints are unpaid to the Hungarian state budget as only VAT. They introduced the online cashers for basically all retail companies, reduced the general VAT rate of certain sensitive products such as raw pork products lately and all invoices having a VAT value more than HUF2 million ($9,000) have to be indicated in the annex of the VAT returns (this also aims to decrease VAT frauds). They even extended the reverse charge system as much as possible to whiten the Hungarian economy. In addition, tax inspectors have extended rights. They are allowed to take in custody the assets, money of taxpayers who have tax shortages and in certain cases they are allowed to force lawyers or tax experts to testify against the taxpayers whom they represent in certain cases. They even introduced electronic tracking of vehicles to reduce VAT fraud deriving from the transportation of goods outside of Hungary and transporting the same goods back to Hungary within a short period of time.
Nevertheless, multinational companies should now be very careful when selecting their suppliers. They should be suspicious if the price offered to them is rather low compared with competition. They have to go into details before contracting these supplying companies checking not only their registration, but also their financial statements back for years and all tax data available on them at official state sources. Furthermore, the origin of the product they acquire should carefully be checked (Hungarian source vs EU / non-EU source).
All in all, it should be advisable for multinationals to work closely with specialists in this field in the Hungarian market.
Zoltan Lambert
Tel: +36 1 887 3711
Email: zoltan.lambert@klient.hu
