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Hungary: tax audit focuses

Tax audit focuses. Regarding VAT, the main areas of focus will be the compliance with invoicing obligations, and the verification of transactions on the basis of which invoices were issued. In addition, tax audits will continue to focus on the most typical forms of fraud, including chain transactions.

Together with taxpayers involved in VAT fraud and companies deemed risky from a tax perspective, the natural persons related to these taxpayers who acquire revenue in connection with the operation of these companies will also be subject to tax audits.

In corporate income tax, the following topics will remain crucial: the audit of the adequacy of applicable transfer prices used between related parties, specifically in case of non-conventional price determining methods and the legality of the application of the research and development allowance to the tax base.

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Hungary: EJC ruling on VAT deduction

Hungarian courts referred three cases to the European Court of Justice with the intention to clarify the conditions set by national legislation for deducting input VAT.

The ECJ has acknowledged that Member States may adopt measures they deem necessary to ensure the correct collection of VAT and to prevent evasion, provided that such measures do not go beyond what is necessary in order to achieve these objectives. Therefore, they cannot be used in a way that would systematically undermine the right to deduct VAT.

According to the ECJ, the question whether the VAT payable on the prior or subsequent sales of the goods concerned has or has not been paid to the national budget is irrelevant to the right of the taxable person to deduct input VAT.

The ECJ has repeatedly ruled that it is contrary to Community law to refuse a taxable person the right to deduct input VAT in respect of the services supplied to it on the ground that the issuer of the invoice relating to those services, or one of its suppliers, acted improperly, if the tax authority does not establish on the basis of objective evidence, that the taxable person concerned knew, or ought to have known, that the transaction relied on as a basis for the right to deduct was connected with fraud committed by the issuer of the invoice.