- Legal definition
In accordance with Section 3.1 (10) of the Hungarian Accounting Act, so-called “uncollectible claims” are claims that
(a) cannot be collected in whole or in part by compulsory enforcement
(b) have been paid off by the debtor in the course of liquidation proceedings
(c) are not covered according to a written certificate from the liquidator
(d) are not paid in the liquidation proceedings after distribution of assets
(e) are owed by a debtor who cannot be located at his place of residence or whose enforcement costs would exceed the claims
(f) cannot be enforced in court proceedings
(g) are time-barred.
- Documentation of the status of uncollectible claims
According to the regulations in force from 1 January 2005, the status of uncollectible claims must be proven in each individual case and documented accordingly.
In the practice of the Tax Authority (Tax Issue 1998/69), it has been established that in the case of debts of companies, the following may be considered sufficient evidence of the status of an uncollectible debt:
a) the company has been deleted from the commercial register; in this case, the decision of the registry court must be obtained.
b) debtors within the meaning of point 1 (e) above who cannot be located at their registered office will have letters sent to them returned with the note “addressee unknown”.
In this case, the company may initiate deletion proceedings against the indebted company at the registry court, in which case the decision of the registry court will again be considered as evidence of the status of an uncollectible debt.
Please note that a returned letter with the note “addressee unknown” is not sufficient in itself (Tax Issue 5/1996). The tax office always requires an official, independent confirmation from a public body (e.g. for companies, the commercial register, for natural persons, e.g. the municipality that the person has never been resident there, etc.) confirming that the debtor cannot be found.
c) As part of the enforcement proceedings, if the enforcement officer declares in writing that the debtor cannot be found.
- Write-off of uncollectible debts
According to Section 65 (7) of the Accounting Act, uncollectible debts may not be shown in the balance sheet, but must be offset accordingly as credit-related losses.
There are therefore two different groups of debts:
(a) Whose “uncollectible debt” is proven and documented as described in point 1. These must be written off. Partially uncollectible debts can also be written off to this extent.
(b) Debts that cannot be documented as bad debts must be shown in the balance sheet and cannot be written off.