A 2022 tax package One of the most interesting, but not yet well-received, elements is the introduction of the provision of data by payment service providers, which It will take effect on January 1, 2024. The government’s bill justified this on the grounds that “the dynamic growth of cross-border e-commerce and the new VAT rules on e-commerce, which will take effect on 1 July 2021, will necessitate the introduction of a new control tool”. With this new tool, the government has an undisguised goal. The explanatory memorandum to the proposal stated that “the purpose of the proposal is to provide tax authorities with a means of verifying compliance with the VAT obligation on cross-border e-commerce transactions by transmitting available payment data on cross-border payments”.
Dániel Sztankó, Director of RSM’s Tax Business according to the provision of data by payment service providers, the control tool of the tax authority becomes complete. The consultant believes that in the wake of the cash flow reporting
the Hungarian tax authority gains effective control over tax revenues that it has not been able to realize so far, as it did not have the information to enable the actual collection of taxes.
The practical consequence of this step is that NAV automatically obtains quarterly data through payment service providers, on the basis of which it can immediately and relatively accurately estimate how much VAT foreign webshops are obliged to pay to the Hungarian tax authorities.
The essence of the amendment can only be really grasped if we recall the existing rules. Before 1 July 2021, if, for example, the distance sales of a company established in Slovakia to Hungary remain below EUR 35,000 per year, the company is not obliged to opt for taxation according to the destination country (in this case Hungary). That is, you can legally apply a 20% Slovak VAT rate instead of a 27% Hungarian VAT rate. This threshold has to be calculated on a country-by-country basis, ie the Slovak company can apply 20% VAT on sales to customers in Poland instead of 23% in Poland, up to EUR 35,000. From 1 July 2021, this amount shall be reduced to EUR 10 000 and shall be aggregated (Sales to Hungary and Poland in the previous example should be added together). In connection with the amendment, it is also important to mention that in addition to the truly foreign webshops, many webshops with a Hungarian background, typically installed abroad, also play in the black zone with regard to VAT rates.
By using VAT rates, webshops established abroad have a price advantage over Hungarian webshops. “Many companies – illegally – apply VAT at their place of establishment (eg Slovakia) even if it exceeds the threshold, which is difficult for the tax authorities to control,” explains the RSM expert, who also points out that
it is not currently in the interest of foreign tax authorities to transfer the information and, with it, part of the tax revenue to other countries. However, from 1 January 2024, tax authorities across the EU will automatically receive payment data.
The expert illustrated all this with an example: If the Hungarian tax authority becomes aware that a Slovak company was paid a total of EUR 1 million by Hungarian individuals via bank card / credit card, it will be possible to determine which webshop companies belong to the Hungarian tax authority without the cooperation and information sharing of foreign tax authorities.
The consultant’s expert also added that “in addition to lowering the thresholds and more efficient collection of taxes, the regulation will also amend the tax administration from 1 July 2021”. In order to pay VAT in the destination country, online distance sellers in the EU would normally have to register in each Member State where they sell. However, in order to reduce the administrative burden involved the One Stop Shop (OSS) system, which does not require registration in the OSS in every Member State, will apply from 1 July, it is sufficient to do so in one Member State and declare all other Member States’ VAT there. The tax authorities of the Member States then settle the tax due with each other through the OSS system. OSS can also be selected below the value limit.
The RSM consultant also mentioned that “the lower VAT rate was not only played by Hungarian companies” fleeing “abroad”. For companies with a non-Hungarian background, which operate in a country with a low tax rate, organize their activities from there, it was more advantageous to sell the products at a lower tax rate, hiding behind the value limit of 35,000 euros, even to Hungary. In this connection, we can cite another example: in Luxembourg, for example, the standard VAT rate is 17%. The fact that a Luxembourg company exceeds the limit of EUR 35,000 for sales to Hungary is revealed if the Luxembourg tax authority explicitly detects this (it is difficult for the Hungarian NAV to establish this without providing data on payment service providers). “However, the tax authorities of countries with lower tax rates have no interest in investigating such a case, ie by voluntarily giving up their own tax revenue and transferring it to Hungary, allocating resources for this,” the expert explains.
“The stricter control will probably lead to a higher rate of compliance by foreign companies. The Slovak company doesn’t really care whether the Hungarian tax authority knows about exceeding the value limit or not,” Dániel Sztankó noted.
Of course, such a significant change could also affect consumers. If webshops fear the intensification of tax control, they will be forced to sell at the tax content valid at the place of purchase (for example, higher Hungarian VAT), which in practice means that
customers will be forced to pay the higher amount of Hungarian VAT for the products.
Domestic customers on the largest price comparison sites could regularly come across offers (typically for electronic devices, smartphones, other gadgets) where there were 1-2 offers with significantly lower prices. In practice, this may now be the end of the new regulation.
Overall, the RSM expert, following the forthcoming new measure, predicts that as it will be more difficult to sell products or services through webshops at the tax rate of a country with a lower VAT rate, It is expected that several foreign webshops will offer their products or services with Hungarian VAT.
Cover image source: Getty Images
–
