Will the Hungarian tax authority come knocking during the time of Covid19?

The most recent government decree on economic protection was published in the Hungarian Bulletin this week. The decree is intended to suspend enforcement measures including tax enforcement. Unfortunately, the government's swift actions seem to have left a loophole in the system.

Suspension of enforcement

The decree1 is primarily focussed on stopping court enforcement, but tax enforcement is also dealt with a relatively short article. According to the decree, on-going tax enforcement procedures are suspended until the 15th day after the end of the state of emergency. The limitation period is suspended as well, so taxpayers are not released from debt but they are granted temporary relief.

But what exactly does suspension mean? Luckily, suspension of tax enforcement is not an unusual phenomenon, so the existing laws already set out exactly what rules apply. Put simply, the Hungarian tax authority (NAV) can't take any action and can't enforce anything.

There's a catch though - the collection on companies' accounts poses a challenge. Usually, NAV would immediately take action to cancel every collection already ordered. Under normal circumstances, there is no issue with this process - but in this case, NAV would be required to cancel every collection by all the banks in the country at once. In all likelihood NAV does not currently have the capacity for this, and potentially the banks don't either. Fortunately, if a bank successfully makes a collection after the start of the suspension - officially at midnight on Tuesday - then NAV must refund the collection within 8 days.

No cause for complacency

If a taxpayer reads the above carefully, they might notice that only enforcement procedures already in progress have been suspended. What happens to the (presumably many) companies where tax debts are incurring now? These companies are not exempt from tax enforcement according to the wording of the Decree, and in principle, NAV may order collection of their debts. Naturally, we can trust NAV will act fairly in this situation and won't take advantage of the loopholes in the system by launching tax enforcement on a massive scale.

Another issue is that the suspension of enforcement does not cancel debt, it only prevents NAV from recovering it. The suspension does not help any taxpayer from whom public debt relief or reliable taxpayer status is critical (such as EKAER security deposit, AEO authorization or public procurement, to name a few examples).

Of course, these issues may be addressed by the government over time. The government has been required to implement unprecedented laws and regulations at record pace, and minor misunderstandings will inevitably arise in the process. In the meantime, all taxpayers should continue to pay their taxes as usual if they are able to - if for no other reason than because. governmental revenues are rapidly depleting and the economy will need huge governmental support to get back on its feet.

1 Government Decree 57/2020. (III. 23.) on the measures to be taken in connection with enforcement in the event of an emergency in order to prevent or eliminate the consequences of a mass epidemic that endangers the safety of life and property and to protect the health and life of Hungarian citizens

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