Precondition of Sustainable Automation is Simplification

The striking decrease in the Hungarian VAT gap, impressive by EU standards, can be linked to the introduction of real-time invoice data reporting in 2018. More than one million taxpayers have been connected to NAV’s system. Their hundreds of millions of invoices each year are also entered into the tax authority’s risk analysis system the moment they are issued.

The drastic reduction in the number of tax audits requiring personal presence is also due to the positive impact of digitization by the tax authorities. If we look at the changes from NAV’s point of view, the RTIR obligation is a real success story: it has led to increased efficiency and reduced administrative burdens, as well as more efficient operations.

On the taxpayer’s side, however, the picture is not so positive. There is undoubtedly a group of mostly smaller operators, where the introduction of mandatory electronic invoice data reporting has not had a lasting negative impact on operations, apart from some initial inconveniences and the natural learning curve.

However, Grant Thornton’s experience is that there are a significant number of companies where the new obligation can only be met in the long term with increased costs and administrative burdens. The most affected companies use their own (or legacy) ERP systems for invoicing, which were not developed with the Hungarian legal environment in mind. Companies have only been able to ensure compliance by integrating additional software, further increasing the complexity and thereby also the possibility for errors.

Negatively Affected

While potential problems with invoices issued can be detected and reported immediately by financial departments or customers, the responsibility for detecting and dealing with failures in real-time invoice reporting would, in many cases, fall on the IT department, which, in addition to being disinterested, is also negatively affected by a lack of invoicing knowledge. 

At the same time, NAV devotes considerable resources to detecting incorrect or missing data, contacting the companies concerned and launching compliance investigations, as the accuracy of invoice data reports is essential for the good operation of its systems.

The market has also recognized this need, and some solutions to address the problem have started to emerge. Consulting firms such as Grant Thornton have developed automated or semi-automated online invoice audit solutions to support software-based screening and management of invoice reporting issues. Grant Thornton has been involved in several projects aimed at the mass remedial submission of missing data or correcting erroneous invoice data to NAV. Technology can be an effective way to combat errors made by another technology in that it can be used to manage the additional administrative burden caused by mistakes, but it can also lead to further costs.

It may be worthwhile completely rethinking existing processes and technologies used to reduce costs, in addition to administrative burdens, in a sustainable way. One way to achieve this is moving all accounts receivable processes to the digital space provided by NAV. The existing framework has allowed companies to fulfill their invoicing and invoice reporting obligations with a single electronic document from last year. A NAV XML e-invoice is suitable for invoice data reporting and digital archiving, as well as for establishing the legal basis for the customer to deduct its VAT.

After the transition to NAV XML e-invoices, the invoicing and the data reporting processes will no longer be separated, thereby reducing the complexity of the technology and eliminating the need for the subsequent verification and reconciliation of the data included in invoices and reported to the tax authority.

This article was first published in the Budapest Business Journal print issue of February 25, 2022.