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15. TAX CONTROVERSIES

In Hungary there is a clear pressure to generate tax revenue in order to decrease the state debt. Effective remedies in tax procedures are often available only at the court or supervisory level. The tax authority often refuses direct application of EU law even if it contradicts domestic legislation; such cases should be referred to CJEU. Tax authorities are generally suspicious of unusual business structures but are usually open for dialogue.

The audit process can be divided into the following parts:

1. Starting the Tax Audit

As a general rule, the tax audit starts with handing over the engagement letter of the tax auditors, which includes the taxpayer’s name, the type of audit, the auditor’s name, the type of taxes and the period under review. Once the tax authority has started a comprehensive tax audit, the taxpayer cannot self-adjust those tax returns that are within the scope of the tax audit.

2. Conducting the Audit

The tax authority performs the audit either on-site or in its offices. During the audit, the tax authority should clarify the underlying facts and circumstances and assess the taxpayer’s tax liability. The taxpayer is obliged to hand over the necessary documents and information and to cooperate with the tax authority. In general, the deadline for the tax audit is 90 days (120 days for the largest taxpayers). The deadlines may be extended several times. In the case of pre-refund tax audits, the deadline is 30 days. The tax audit generally may not exceed 365 days (180 days in case of reliable taxpayers)

3. Closing the Audit

When finishing the audit, the tax authority prepares the tax audit minutes, summarizing the facts established by the tax authority and assessments of the tax authority. The taxpayer is entitled to file a letter of comments against the tax audit minutes in which the taxpayer can summarize its standpoint regarding the tax authority’s assessments. Upon receiving the letter of comments, the tax authority may either continue the audit or issue the first instance resolution.

If during the tax audit, the tax authority identifies that the taxpayer committed a criminal act (e.g., budgetary fraud), it must be reported to the tax authority’s unit carrying out criminal investigations. This unit of the tax authority then decides whether to initiate criminal proceedings against the taxpayer.