Deloitte argues for automation of partner VAT controls

Zsuzsanna Huszl of Deloitte Legal

According to statistics, the National Tax and Customs Administration (NAV) completed 156,612 tax control processes in 2017, finding a net tax differential of HUF 211.7 billion, which resulted in sanctions (tax and malpractice fines, late fees) worth a total of more than HUF 200 million.

Similarly to earlier periods, most of the revealed problems (79.9%) were in the VAT tax field. This stagnating number means that most tax-related lawsuits are based on VAT rights disputes.

In most of these lawsuits, NAV tends to try to make large companies at the end of the billing chain pay for the unpaid VAT, which originates in mistakes made by earlier members of the chain. The authority might also deny bona fide companies their tax deduction rights, citing lack of foresight.

"In these legal disputes, however, in most cases proving the foresight of clients comes with difficulties, especially when the clients forget to document every step of partner controls they have made," explains Zsuzsanna Huszl, an expert of Deloitte Legalʼs tax disputes team.

"Proving the required foresight and the rightfulness of tax deduction is further aggravated by the fact that there is no list created by NAV that clients can use for a thorough check of their partners. The control aspects are shaped by legal practice, and they are constantly expanded based on rulings by the European Court of Justice and the Curia [Hungaryʼs Supreme Court]," she adds.

Furthermore, companies creating a significant amount of bills and cooperating with several partners (suppliers) can only complete the control of all their partners by hiring staff dedicated to this task. Many companies do not have enough funds for this, so that checks and controls of the trustworthiness of partners fail to occur, increasing the chance of tax anomalies and decreasing the possibility of a successful legal remedy.

"A team of Deloitte Legalʼs tax dispute lawyers, VAT and tech experts developed a solution, released in 2017, which helps these companies by automating the inner control process via the software named PartnerScan," Huszl says. "Companies using the software are successfully overcoming control challenges, experience shows."

Automation is rapidly gaining importance in todayʼs world, including the field of taxation. After the introduction of measures such as online cash registers, online invoicing, and the Electronic Public Road Trade Control System (EKÁER), the next involved area could well be tax control. In the case of controls, automation might very well make the life of taxpayers easier, not more complicated.

A software solution does not only relieve companies of their administrative burden, but also prepares them for controls, and helps in picking the right partners. Companies that are always granted tax deductions might even gain a competitive edge by utilizing such solutions, as faster controls before transfers means getting the VAT value back within a deadline, making planning with the returned money possible.