Kajtár Takács Hegymegi-Barakonyi Baker & McKenzie Ügyvédi Iroda is a member of Baker & McKenzie International, a Swiss Verein. Hungarian Measures Against Carousel Fraud: New Trade Control System I. Introduction In order to combat the evasion of VAT, especially the so-called "carousel fraud", a new trade control system known as the Electronic Public Road Trade Control System ("EKAER") has recently been introduced in Hungary. The system is aimed at controlling (i) all transactions that fall under the scope of the VAT Act in Hungary due to trade with EU Member States, and (ii) the first VATable supply of any given product in Hungary. The purpose of the system is to provide the tax authority with accurate and real-time information on transportation in relation to transactions most often involved in tax fraud (“high-risk products”), especially the acquisition of goods from within the European Union and the supply of goods to Member States. The Hungarian tax authority will be able to ascertain, for example, whether goods sold to other EU Member States in fact leave the territory of Hungary. Or, in the case of a local supply, the tax authority will be able to control the origin of the goods, in order to ensure that only taxed products are sold in Hungary. The regulation creating the EKAER came into force on January 1, 2015. Since then, the regulation has been modified and clarified and the system “went live” on March 1, 2015. Under the EKAER, specific road trade activities have to be reported to the National Tax and Customs Authority (“NAV”) prior to the commencement of the transportation, and the transportation can only be pursued in the possession of the EKAER number issued based on the report. In the case of certain products, qualified as high-risk products, security also has to be provided. The following transportations are subject to the EKAER: movement of goods from another EU Member State to Hungary due to intra-Community purchase of goods or for other purposes; movement of goods from Hungary to another EU Member State due to intra-Community supplies of goods or for other purposes; and the first supply of goods subject to VAT in domestic trade, to purchasers other than end users (end users are private individuals purchasing the goods for their personal use). II. Reporting Obligation According to the regulation as of March 1, 2015, transportation activity by (i) vehicles obliged to pay a road toll (vehicles exceeding 3.5 tons of maximum gross weight) or (ii) vehicles not obliged to pay road toll, but transporting products that are classified as high-risk can only be pursued in the possession of an EKAER number. (The Minister of National Economy publishes the list of the highrisk products in a decree. Currently the list comprises certain foods, chemicals and clothes.) Regardless of the above, certain products and vehicles are exempted from the obligation to require an EKAER number. These include: certain excise products (alcohol products, tobacco, controlled petroleum products, bioethanol, biodiesel etc.); pharmaceuticals; vehicles obliged to pay a road toll if the weight of the products transported does not exceed 2,500 kg and their price (without tax) does not exceed 5 million forints; and 2 high-risk products transported in a vehicle not obliged to pay road toll if the weight of products does not exceed 500 kg and their price (without tax) does not exceed 2 million forints. In order to obtain the EKAER number, the transportation has to be reported to the NAV. The reporting obligation has to be fulfilled via the personal portal (“Ügyfélkapu”) system (i) in the case of intraCommunity acquisition, by the consignee, (ii) in the case of intra-Community supply, by the consignor, and (iii) in the case of domestic supply—apart from certain exemptions—also by the consignor. As a general rule, details which have to be reported to the NAV include: the name and tax ID of the consignor; location and date of loading and the date of commencement of the transportation; name and tax ID of the consignee; and location and date of unloading, and the date of. In connection with the products, the name, tariff classification and gross weight, (and in the case of high-risk products the price without taxes) has to be reported. The license plate number of the vehicle used for the transportation and the reason for the transportation also has to be reported. Following the submission of the report, the system generates a so-called EKAER number. The number identifies the given product units that are transported (i) from one consignor (ii) to one consignee (iii) with one vehicle. The EKAER number is valid for 15 days. III. Special Reporting Obligation In order to relieve the administrative burden, the taxpayer is entitled to fulfil its reporting obligation with simplified data in case of non-high-risk products as of April 1, 2015 if: in the second year preceding the year of the report, the taxpayer's net sales reached or exceeded 50 billion forints, and the net sale of self-manufactured stocks reached or exceeded 40 billion forints; the taxpayer is registered at the tax authority's public debt free registrar; and the taxpayer's tax ID is not suspended at the time of the reporting. In such cases, only the data of the consignor and the consignee (name and tax ID), and the license plate number of the vehicle used for the transport have to be reported. Taxpayers who fulfil the above criteria are not only entitled to report with simplified data, they might also be exempted completely from the reporting obligation, if they transport products between two domestic locations that are no more than 20 km away from each other so frequently that the daily reporting obligation would cause a disproportionate burden. In such cases, the NAV could provide a so-called "distance exemption" at the unique request of the taxpayer, which is valid for one year. With this rule, the issue of so-called consignment stocks—among others—can be dealt with. IV. Special Rules for High-Risk Products As of March 11, 2015, in the case of high-risk products, security also has to be provided except for supplies of goods to EU Member States. In the case of high-risk foods, an additional reporting obligation also applies. 3 For the first instance of transporting high-risk goods, the security required is 15% of the net price of the transported goods. In subsequent cases, the security continuously has to reach 15% of the net price of all high-risk products related to EKAER numbers received within a 45-day period prior to the request for the EKAER number. If the security does not reach the required amount, the NAV will not provide a new EKAER number to the taxpayer. The security sum should be provided in two ways, either by payment to a separate escrow account, or by a guarantee registered by the tax authority and provided by a financial institution, a payment institution or an investment undertaking. The taxpayer who is (i) registered in the qualified taxpayers' registrar or (ii) has been operating for at least two years and registered in the tax authority's public debt free registrar, and whose tax ID is not suspended at the time of the reporting does not have to provide the security. V. Legal Consequences Taxpayers who fail to comply with the reporting obligation or report incorrect, untrue or incomplete data face serious consequences, if it is uncovered in the course of a tax audit. Unreported goods will be deemed as being of unconfirmed origin and the tax authority may impose a default penalty amounting up to 40% of the value of the unreported goods. Moreover, the transported goods (except for highly perishable goods and livestock) may be confiscated as securities to the extent of the value of the default penalty.