As of 1 January 2016, the tax authority can classify the taxpayer as "reliable" or "risky" in every quarter, for whom different procedural rules apply than to the non-separately categorized "average" taxpayers. One of the most significant effects of these special rules concerns the VAT refund procedure ‒ it will be shorter for reliable taxpayers, and it will be longer for risky taxpayers.
As per the new rules of the Hungarian Taxation Procedure Act, the tax authority classifies the taxpayers ‒ which includes Hungarian registered companies and VAT registered foreign entities ‒ in every quarter, for the first time in the first quarter of 2016. The tax authority classifies the taxpayers within 30 days from the relevant quarter, and informs them electronically on their classification or on the change of classification. The consequences of the classification are effective from the first days of the second month following the subject month. The taxpayer can submit objection against the classification or the absence of the classification within six months.
According to the general rule ‒ which is applicable for the "average" taxpayers ‒ the tax authority refunds the requested amount within 30 days from the receipt of the application (but at the earliest from the due date), but if the refund request exceeds HUF1 million, within 45 days from the receipt, provided that the taxpayer paid all the relevant VAT until the submission date of the tax returns. Otherwise the tax authority will refund the VAT within 75 days.
For risky taxpayers, from 1 May 2016 (the effective date of the classification), the tax authority refunds the VAT within 75 days, and no favorable rule can be applied. Reliable taxpayers will sense the advantage of their classification from 1 January 2017, because from that day, as a general rule, the tax authority will refund the VAT within 45 days. There will be more advantageous rules applicable as of 1 January 2018, as the tax authority will refund the VAT reclaimed by reliable taxpayers within 30 days. It is very important that for the application of these favorable refund periods, it is not required from the reliable taxpayer to pay all the relevant VAT until the submission date of the tax returns.
How to become a reliable taxpayer?
To be classified as a reliable taxpayer, the taxpayer should meet all the following criteria:
- has been operating/has been registered for at least three years;
- in the subject year and the preceding five tax years, the tax default stated by the tax authority does not exceed 3 percent of its tax performance in the given tax year;
- in the subject year and the preceding five tax years, the tax authority has not initiated execution procedure against it (excluding recharge procedures and exercising retention rights);
- in the subject year and the preceding five tax years, it was not under bankruptcy, liquidation or forced deregistration procedure;
- does not have net tax debt in the excess of HUF500,000;
- in the subject year and the preceding five tax years, its tax number was not suspended due to non-compliance with tax declaration or payment obligation for 365 days from the due date despite the notice of the tax authority;
- in the subject year and the preceding five tax years, it was not subject to tax number cancellation;
- the amount of default penalty that became due within the two preceding tax years does not exceed 1 percent of its tax performance;
- in the subject year and the preceding five tax years, it was not subject to increased tax authority supervision; and
- is not classified as a risky taxpayer.
The tax authority classifies the taxpayer risky, who is not under liquidation, voluntary liquidation, or forced cancellation procedure, who meets at least one of the following criteria:
- is on the list of taxpayers with high tax default (over HUF10 million for natural persons and HUF100 million for other taxpayers);
- is on the list of taxpayers with high tax debt (over HUF10 million for natural persons and HUF100 million for other taxpayers);
- is on the list of taxpayers employing unregistered persons; and
- having their premises closed by the tax authority twice within a year.
The classification as a risky taxpayer is binding for one year from the date when the underlying reason occurred.