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Everyday business practices not always legal - EY

According to experts of the Vámosi-Nagy Ernst & Young Law Officeʼs tax group, companies in Hungary must pay special attention to their everyday business practices, as not complying with the formal requirements in taxation may cause serious problems.

Dániel Bajusz, Vámosi-Nagy Ernst & Young Law Office

EY legal experts recall that just recently, an entrepreneur claimed that the way his company operates when trying to appeal for a reduction of its business tax is widespread business practice. The Constitutional Court refused the complaint without investigation, however.

The entrepreneur argued that sealing contracts with subsidiaries simply via e-mail is good enough, as international customs and business practices dictate. However, this argument was refused by the tax authorities as well as the court, as the rate of local business tax relevant for the company can only be decreased if valid paper-based subsidiary contracts are available.

The only case when e-contracts are accepted in the place of traditional ones is if they comply with the strict formal regulations of tax law, meaning that they need to contain increased-security e-signatures, notes EY.

"The message of the tax authority and the court in this case is that the practical aspects of business practice cannot overwrite the formal requirements imposed by tax legislation," says Dániel Bajusz, senior manager at Vámosi-Nagy Ernst & Young Law Office.