Tax audit risks for issuers of invoices
Ensuring that invoicing software and modules are compliant with the Hungarian tax regulations isn't always an easy task. Integration issues which could lead to differences and deficiencies in data reporting, later on, are particularly widespread in the case of entities developing or using foreign or proprietary ERP systems.
Online invoice self-revision and error correction: what you should pay attention to when issuing invoices
1. Online invoice revision: preliminary self-revision
It's no secret that the Hungarian Tax Authority monitors the quality of online invoice data reporting. A company is likely to face a compliance review or a tax audit if its online invoice reporting frequently runs into errors or is often rejected. Failure to perform preliminary self-revision poses a risk in the following cases:
- when migrating to a new invoicing software application
- before invoicing a new type of transaction
- when the Hungarian Tax Authority modifies XML schemas
It's important to note that the preliminary self-revision of invoice data is only possible during the testing phase, as otherwise the requirements of immediate online invoice data reporting and no human intervention would be violated.
2. Online invoice error correction: subsequent review
Although the correction of an online invoice is usually straightforward based on the error messages provided by the tax authority, it isn't widely known that an error-free submission of an invoice doesn't automatically mean that the data reporting was accurate.
For invoice reporting to be accurate, the data recorded in the ERP system, in the invoicing software and in the Online Invoice System of the Hungarian Tax Authority must match. Most discrepancies arise from technical or administrative errors such as:
- wrong buyer category
- typo in a tax number
- wrong product code
- use of an incorrect exemption code
- wrong parameters or settings
The tax authority uses submitted VAT returns and the related online invoice reports for the relevant period as the basis for identifying any tax shortages. If the aggregate VAT value on the sales side in the Online Invoice System is higher than the amount that the company declared and paid, the company may be contacted in order to identify the source of the difference in VAT.
A frequent error is that the fulfilment date on the invoice and the fulfilment date reported via the online invoice are different, which may well be due to inaccurate data reporting arising from incorrect parameter settings. Just as companies determine the date of VAT liability for the invoice and the reporting period based on invoice data, the tax authority relies on online invoice data when doing the same. The difference between the two will affect both the reporting period and the aggregate VAT value.
The Hungarian Tax Authority does not differentiate between incorrect and missing data reporting. Both cases carry an equal fine of up to HUF 500,000 per invoice.
Tax audit risks for entities receiving invoices
In most cases, you cannot influence whether your partner provides you with accurate data regarding an invoice issued to you, but providing correct invoice information in the domestic sales and purchase list for the VAT return is purely your responsibility.
It's a good idea to perform self-revision as the Hungarian Tax Authority could pay a visit to both parties if it finds differences between the submitted M-sheets and partner's online invoice reporting.
Hidden catches of M-sheets: what you should pay attention to when receiving invoices
The most frequent differences between the VAT sales and purchase list and the data in the Online Invoice System arise from the following:
- the issue date was entered as the fulfilment date
- a date different from the fulfilment date on the invoice was entered in the books, and so the date on the M-sheet is also incorrect
- the prorated and deducted amount is indicated on the M-sheet instead of the entire VAT content of the invoice
- the special indication of a final invoice was not used
- the partner's group VAT number is missing
Stay off the radar of the Hungarian Tax Authority
It's advisable to check whether the reporting error was on the issuer's side or on the side of the entity accepting the invoice before the tax authority's enquiry. This allows corrective action to be taken before the tax authority notices the issue, i.e.:
- you could correct your M-sheets (although checks should be performed when the return sheets are prepared in the first place so that accurate M-sheets are submitted to the tax authority);
- you could suggest that your partner correct their invoice reporting, or you could keep a record of the items in question.
Do you like administration?
The implementation of the Online Invoice System represents both a challenge and an opportunity for companies. One thing is for certain: it improves transparency, and the data that become accessible this way provide an opportunity for innovation which can save time and effort for both the issuer and the entity receiving the invoice by reducing the administrative burden and through automation.
Nowadays, differences in invoice data no longer need to be identified manually. The technology is available not only to the Hungarian Tax Authority, but also to companies, thereby allowing for online invoice audits and error correction, as well as the automated generation of M-sheets.
