UPDATE: According to the latest announcement, the Hungarian Tax Authority (NAV) fairly appraises entrepreneurs' pay relief requests, If it causes difficulty for taxpayers to pay their taxes, they may request a reduction in the amount of the tax advance, a deferred payment, or an instalment payment.NAV taking into account the economic impact of the coronavirus and will handle fairly the requests for payment relief from entrepreneurs. In case the coronavirus epidemic has reduced corporate revenue to such an extent that corporate tax is less than the tax advance payable in the tax year, the taxpayer should ask for a tax reduction . The deadlines: for those who have to pay monthly tax advances can apply for a reduction until March 20, and quarterly tax advance payments by April 20. In addition to corporate tax advances, small enterprise tax, innovation tax and energy suppliers’ income tax advances can also be reduced. Tax deferral or tax payment by instalments may be requested by taxpayers as well. Businesses can request payment relief for their social contribution obligations, for VAT, and for special tax types too. In the event of payment difficulties, small business tax regime taxpayers (KATA) or the small enterprise taxpayers (KIVA),may apply to the tax authority, which will reasonably judged by the NAV.
The operation of Hungarian companies is also endangered by the COVID-19 epidemic
Tourism had begun to decline already before the local appearance of the coronavirus in Hungary, however, since the infection has reared its head also domestically, the number of canceled trips and overnight stays has begun to multiply. In fear of the epidemic, both individuals and large corporates have been canceling their scheduled visits, business trips and conferences to and from the already infected or at-risk countries and announcing that they cancel all group events and gatherings to reduce personal contacts. In addition, the world economy has suffered another blow from the sharp decline in oil prices due to the disagreement between Saudi Arabia and Russia.
What can companies do to alleviate the difficulties in paying their tax liabilities?
Naturally, it is in everybody’s interest for the epidemic to end as soon as possible, however, already the last couple of months have caused serious damage to the world economy. What can companies and entrepreneurs do about their tax liabilities if they can already foresee payment difficulties? Although the proposed solutions do not solve the problem in the long run, the timely rationalisation of tax liabilities can help them bridge the sudden loss of income.
In unforeseeable crisis situations, such as the current one, the Hungarian tax regime offers payment reliefs, which may help taxpayers in difficulty due to various financial and social situations. These tax reliefs include applications for the deferral or installment payment of the tax liability as well as the reduction of the tax payable and, in duly justified cases, even the remission of the tax liability on grounds of equity. In the following paragraphs, we shall briefly discuss the possibilities of tax pre-payment reduction and payment in installments.
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Tax pre-payment reduction options
1. Local business tax reduction
The local business tax liability is very relevant for entities whose business year coincides with the calendar year as they are required to pay the first half of the tax liability until 16 March 2020.
The tax installment is determined on the basis of an earlier period, more specifically 2018 and, therefore, if due to the current extraordinary situation it can be foreseen that the entity’s profit will fall way behind the profit in the previous years, it may be advisable to consider the reduction of the prescribed tax installment! This way, the taxpayer can reduce the amount of the tax installments payable and can adjust the tax payable to its current economic situation. This may make it possible for entities to reduce their currently payable tax liability.
In the application, the taxpayer shall present, based on the available information and estimates, the expected movements of those business data that are to be taken into consideration for the purpose of calculating the tax liability. Additionally, the entity shall support the application with quantitative numerical data.
2. Corporate income tax reduction
Also in the case of corporate income tax, it is possible to modify the pre-payment liability calculated from the former tax return by means of completing the ELOLEGMOD form developed by the Hungarian Tax Authority (NAV). Please note that the expected reduction of the corporate income tax amount requires a more detailed estimation exercise! The expected tax liability is to be calculated and presented with the entity’s income and expenses in mind. However, it is highly advisable to use this opportunity in the sectors most affected by the epidemic in order to improve the cash-flow position.
3. Robin-Hood tax
The sharp decline in the price of oil in the world impacts entities that, in addition to the general tax liabilities, are also subject to the income tax on energy service providers. Similarly to corporate income tax, the entities concerned are required to make a pre-payment calculated on the basis of their annual tax liability for the previous period. However, due to the current world market prices, the sales of these entities will almost certainly be below the previous years.
Therefore, it is worth considering the reduction of the tax pre-payment (which, similarly to corporate income tax, can also be requested from NAV) as this can result in a significant monthly saving for the entities concerned that are already in a dire situation.
Tax installment payment application
1. Local business tax
If the amount of the modified local business tax pre-payment is still so high that timely payment would pose difficulties to the entity in the short run, or if we believe that the reduction in the entity’s annual sales is not duly justified, we may apply for payment of the tax in installments, even in addition to the formerly mentioned application for the reduction of the pre-payment.
However, please note that in some cases, payment in installments can only be requested after the due date, i.e. in respect of already overdue amounts! Accordingly, it is highly advisable to find out about the possibilities and forms offered by the specific municipal tax authority for submitting requests.
2. Corporate income tax
Although the May tax filing period may seem remote, unfortunately, according to the most recent information, the current extraordinary situation will not last for weeks but rather for months. Accordingly, it is advisable to plan and calculate ahead to find out whether the entity will be required to pay corporate income tax simultaneously with the filing of the tax return or whether the tax pre-payments calculated on the basis of the previous period will provide sufficient cover.
In this regard, it should be noted that the 2019 tax year was the first year in which no top-up to the expected annual tax liability was required already in December. As a result, many entities failed to prepare their annual tax schedules at the end of December thus they may find out this May that they have a payable tax liability.
Naturally, for such cases, NAV also has a tax relief form which, however, requires a much more detailed and accurate numerical justification than the tax pre-payment reduction application, yet it is well worth using this opportunity if the entity is able to duly justify it.
3. Other taxes
The payment relief options are worth considering for the majority of local and even other annual tax types so that the entity can weather the current storm and re-emerge healthy at the other end.
All things considered, it is advisable for entities to consider the aforementioned statutory payment relief options as they offer excellent opportunities for reducing their expenses during a difficult period. Nevertheless, please bear in mind that these applications are subject to stamp duty and, for local taxes, it is advisable to consult the municipal tax authority concerned about the available forms, the method and precise deadline of submitting applications and the required attachments so that the application is granted.
What can the legislator do in a situation like this?
One of the best ways for the legislator to support this process would be if he immediately simplified, standardised and, where necessary, centralised the applications for the above tax reliefs and tax installment options. In the current and, for many entities, extraordinary situation the submission of an application in a free format and with reduced data content should be adequate in respect of both state and local taxes.
Should the crisis prolong or escalate, besides meeting their tax liabilities, entities may find it difficult even to comply with their tax filing obligations. Even though working at home is generally possible for most office jobs (although it may not yield the same efficiency) still it may pose a serious problem if accounting and taxation information are not readily available. The delivery of physical documents will slow down as, in the absence of an office environment, the digitalization and electronic forwarding of large volumes of these will become impossible or at least very time-consuming. Moreover, working at home is still not an option for many entities due to the lack of appropriate technical equipment or a sufficiently fast internet connection.
To alleviate the situation, the legislator should prepare a scenario for the postponement of certain burdensome accounting and taxation requirements, for example by extending the deadlines for the preparation and filing of the financial statements as well as the corporate income tax and the local business tax returns at the taxpayer’s request.
