Brave New World of Online Invoicing a Success, Experts Say

Dániel H. Nagy of Mazars.

The start was more or less smooth: most firms were prepared for the change and could join the system from its launch on June 1, 2018. Others that, for example, could not allocate enough resources to it, found it much harder to make the switch. But by the end of 2018, everyone had caught up.  

By law, it is the responsibility of the companies to adjust their systems to the changes. NAV gave a level of support never before seen at the introduction of the online invoicing, says Gábor Farkas, a director of tax and legal services at PwC Hungary.  

There was no lag in their response to questions and support from NAV’s IT staff was also first rate, he adds. “Even after the system went live, the supportive behavior of the tax authority remains, I have no knowledge of anyone having been fined for problems related to online invoicing,” Farkas notes.

The system is not unique. There are many countries with similar solutions, but the way in which the Hungarian system is structured and how the different elements are built on each other is rather unique, Dániel H. Nagy, director of tax and legal services at Mazars SK told the BBJ.  

There was a need for such a thorough approach as the ratio of unreported income and unpaid VAT in Hungary has traditionally been fairly high. Although the time frame given for the introduction of online invoicing system was fairly long, still, many companies did not start in a timely. This had a knock on effect later, with IT professionals overburdened by a sudden rush of assignments.  

To introduce the system, companies had to apply new online solutions. They had a number of options from budget friendly off-the-shelf programs to more costly bespoke solutions. Several large or multinational companies chose to develop their own systems to meet the requirements of online invoicing, says Nagy. That could cost firms millions of forints.  

Many others purchased an interface program that converts the companies’ data – a separate module that can be adjusted to any system. An even more cost-effective solution for smaller firms was to replace their existing invoicing system for a newer one that meets the tax authority’s requirements, Nagy adds.  

Outsourcing an Option

The tax authority also developed its own program and made it available free of charge. And there was an option allowed by the new legislation for outsourcing the entire invoicing process to a third party, such as a consultancy.

According to information from NAV, more than 28 million invoices have been uploaded to the online accounting system by January 2019. With this quantity, the tax authority could have a good insight into the billing practices related to economic events of high amounts, writes Péter Kóczé, a tax expert at RSM Hungary, on that company’s blog.  

Now the non-sanctioned amnesty period has come to end, those still not compliant can expect an unprecedently high fine, Nagy says: The fine is HUF 500,000 per invoice. The law applies only to domestic taxpayers who pay VAT.  

Although the first version was launched only recently, a new version of the online invoicing system already came out at the end of January. As of spring, the files of the old system will no longer be available. This means companies have a limited amount of time to follow up the changes, which considering the reaction time of these companies, is a serious challenge, Farkas notes. It also means that IT developers will have to modify the data reporting modules of the programs so they can continue to send the correct data to NAV.  

It is yet to be seen how much progress taxpayers have made in the field of “digital development” as a result of the online invoice regulation, and how smoothly they can incorporate these changes in their systems, Kóczé writes.   

Despite efforts to make the system more transparent, some firms do find loopholes. One such practice is buying a cheap invoicing system compatible with the new rules and issuing an invoice to the tax authority using that. But they can also issue an invoice using their SAP-system, which will appear in its internal register. Issuing two invoices for the same business activity is questionable in the least, Nagy notes.  

The main purpose of introducing the online invoice obligation was to whiten the economy and curb VAT fraud and evasion. Overall, the introduction has been successful, according to Farkas. With the data available, the tax authority receives a more comprehensive picture of the ongoing businesses and can use the information to improve its services. For example, it can improve its risk analysis system, which automatically selects the companies for audit and avoids unnecessary checks.