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Useful information on tax law matters

Seeking a tax expert (tax lawyer) is NOT timely when an audit has already been initiated, but rather before that. People usually seek a lawyer when they want to establish a company or when they are threatened with litigation. A tax expert lawyer plays a major role in tasks related to economic activities, invoicing, bookkeeping, proper record-keeping, tax optimisation, tax returns, and thus participation in economic life.

As a tax lawyer, I can say from experience that it is more advisable to sit down and review events within the limitation period and the related possibilities before a tax audit begins, rather than starting to worry when receiving the letter of authorisation initiating the tax audit. At that point, self-revision is unfortunately no longer possible, and we can only proceed lawfully with regard to the future.

By means of self-revision, even a significant tax penalty of at least 50% can be avoided.

Most of our clients contact us when they already have an official report in hand and the authority has established a tax shortfall. In such cases, finding a solution is more difficult. Although it is still possible to submit comments on the report free of charge and to reduce the assessed amount to some extent, the case will most likely still end with the determination of a certain amount.

During a tax audit, even a single incorrect answer given to a question in statements made may give the tax authority grounds to reject the given economic transaction, which may have serious consequences.

If the contracts concluded by us, and the related invoices, are not accepted and are classified as fictitious, the burden of proof is reversed, and we must prove that the economic transaction actually took place.

During an APEH audit (NAV audit), never make rash statements. If we do not remember or do not answer questions, that is also suspicious. Always seek the assistance of a professional.

Self-revision

Taxpayers are entitled to the right of self-revision if they detect any error in their tax returns, which may be applied in cases involving the correction of tax or budgetary support amounts. This means that if our bookkeeping for a given period is incorrect (for example, a customer or supplier invoice was omitted from the records, or an economic transaction was recorded incorrectly), we may declare it, pay the related tax, reclaim the excess or have it transferred to another tax type without being subject to severe (additional) sanctions (penalties, late payment interest). This is only possible if the authority has not yet initiated a tax audit.

Self-revision is subject to a surcharge, which must be paid at the same time as the submission of the return. The self-revision surcharge amounts to half of the late payment interest.

Tax audit

During a tax audit, the tax authority examines the submitted returns, as well as the documents included therein, their authenticity, and the occurrence of the economic events, from a statutory perspective.

The course of a tax audit

A tax audit begins with the signing of the letter of authorisation or with notification of the taxpayer by letter. After this point, the taxpayer no longer has the possibility to amend their returns for the audited period by means of self-revision.

The tax authority then requests or inspects, at the taxpayer’s registered office, the documents (invoices) of the audited period and the documents supporting them (certificates, contracts).

At the same time, the taxpayer or their authorised representative is requested to make statements regarding the economic events, invoices and transactions. The authority will primarily focus on economic events it considers fictitious. The outcome of the tax audit is decided during the process of making statements concerning fictitious economic events and the documents evidencing them.

A tax audit may relate to a specific tax type or may be comprehensive, covering all tax types. The audited period may range from one month to several years (up to a maximum of five years).

If the tax authority finds a tax shortfall at the taxpayer, it may extend the audit to additional periods and tax types.

A tax audit is oriented towards the tax types and periods affected by the audit. The audit may concern, for example, VAT, personal income tax or corporate income tax (most commonly VAT audits), or it may be comprehensive.

If, during the audit, documents are found that do not contain economic events, the authority will also conduct a related audit with respect to the other party or parties appearing on the documents.

If notification of the commencement of a tax audit is received, or a letter of authorisation is signed, contact a tax expert lawyer (tax lawyer) in order to avoid the negative consequences of the tax audit.

Wealth increase audit

During a wealth increase audit, the tax authority (National Tax and Customs Administration, NAV) examines whether the income earned by a private individual within the limitation period (5+1 years) is proportionate to their expenditures.

A wealth increase audit is the commonly used term for a specific, retrospective form of personal income tax audit, during which the tax authority prepares a wealth balance on a periodic (annual) basis and compares the expenditures incurred during the given period with the income acquired and taxed by the taxpayer in that period.

During a wealth increase audit, the authority determines an opening amount at the beginning of the audited period, representing the assets available to the taxpayer. This amount is estimated based on information and documents provided by the taxpayer. The derivation of the wealth balance subsequently starts from this point.