Inspection and tax fraud risks: The tax authority’s inspection does not only cover companies suspected of tax fraud, but also always examines companies that have business relations with these companies. According to the practice of the Tax Authority and the court, companies are expected to take all reasonable measures to avoid becoming part of tax fraud. But why can the Tax Authority penalize me if my supplier does not pay tax? Is there a possibility to successfully negotiate sanctions?
Recently, it was reported that the tax authority liquidated a chain that purchased soybean meal from Slovenian and Czech companies and then resold the product to Hungarian customers through other companies without paying VAT. In terms of tax fraud, the trade in food and agricultural products has also become an increasingly important target for the tax authorities.
The action of the Tax Authority is fully justified, as such companies do not pay tax, thereby distorting market conditions and putting honest traders at a disadvantage. However, the tax authority’s investigation does not end with companies suspected of tax fraud. The tax authority always checks taxpayers who have business relations with such companies.
This means that if a company has purchased soybean meal from the above-mentioned chain, the tax authority will examine what measures the company has taken to avoid becoming part of the fraud. If it is judged that not all the expected steps have been taken, or if circumstances have been detected with regard to suppliers that indicate that tax fraud has occurred, the Tax Authority may refuse the right to deduct VAT passed on through invoices.
Since VAT is generally 27%, this sanction can have extremely serious consequences that can even make the company’s operations impossible, not to mention the 50% fine and late payment penalty.
Is there a chance to challenge the sanctions?
Yes, there is! Several court decisions have already been made, stating that the audit process expected by the tax authority is excessive, and that a taxpayer cannot be expected to conduct an in-depth investigation that only an authority can perform (for example, auditing more distant chain actors). However, preparing such a procedure requires serious expertise and resources. It is important to be aware of the court’s rulings in similar cases, because they can be used to successfully defend the company against the tax authority’s decisions.
Our advice: If a market player regularly offers its products at very favorable prices, it is worth conducting a more thorough investigation into what could be the reason for such a significant price difference.
Do you need additional valuable information regarding inspection and tax fraud risks?
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Dr. Géza Katona, LL.M. attorney at law
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Katona & Partner Attorneys’ Association
(Katona & Partner Rechtsanwaltssozietät / Attorneys’ Association)
H-106 Budapest, Tündérfürt utca 4.
Tel.: +36 1 225 25 30
Mobile: + 36 70 344 0388
Fax: +36 1 700 27 57
g.katona@katonalaw.com