EKAER rebooted: Concessions for manufacturers
The Hungarian government recently finalised the new rules for the controversial EKAER system, which tracks shipments of goods. Most of the new rules go into effect on March 1, which is also the end of the grace period for compliance. The new rules address some of the public concerns about the law, and includes concessions for large manufacturing companies. Nonetheless, the fundamentals of the system remain the same.
The EKAER system is an electronic system introduced by the Hungarian government to track road shipments. It imposes a reporting obligation on Hungarian taxpayers extending to the time and place of dispatch and receipt of road shipments; the designation, value and weight of goods being shipped; as well as the licence plate number of the vehicles used to transport the goods. It also involves the obligation to provide security for goods that are labelled by the government as “high-risk goods”.
The system was introduced to fight VAT fraud and seeks to reduce the possibilities of fraud involving fake shipments. The EKAER system works in conjunction with the Hungarian road toll system, primarily targeting vehicles above 3.5 tonnes. It thus provides the tax authority with the possibility to track road shipments in real-time. The drawback of the system is that it places a significant administrative burden on Hungarian businesses and their logistics providers as updated data needs to be uploaded to the designated website of the Hungarian tax authority on a continuous basis. This is even more difficult in relation to transports to and from the EU, where the required data may not be readily available.
Non-compliance may be subject to a fine of up to 40% of the value of the goods transported and may also lead to seizure of the goods.
The extensive data of shipments made and received are to also be used in future tax audits. This means that taxpayers may face the risk of a denial to deduct VAT if data concerning a transport made years before are found to be insufficient or contradictory.
Changes as of March 1
Due to the practical difficulties in implementing the system from January 1, the government has introduced a grace period lasting for two months. During this time, extensive discussions and lobbying was done by various stakeholders. As a result the newest version of this legislation allows large manufacturing entities with turnover figures of at least HUF 50 billion (approximately €160 mln) mostly deriving from the production of own goods, to make simplified declarations. This means that only the name and tax number of the sellers and buyers and the registration plate of the truck(s) used to transport the goods must be declared, no other information need to be reported.
It remains to be seen how effective the new system will be in combating VAT fraud and whether the gains will be proportionate to the extensive administrative burden placed on taxpayers. Further, the system seems extremely problematic from the perspective of the fundamental freedoms of the European Union as it places a clear restriction on the free movement of goods in cross-border situations. Some parts of the legislation also discriminate against intra-Community acquisitions. It therefore remains to be seen how long the newest iteration of this legislation is going to survive.
–Written by Tamás Fehér (pictured), attorney, tax advisor, Jalsovszky Law Firm
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