What Should I Do If NAV Starts a Tax Audit Against My Company in Hungary?
Has the Hungarian Tax Authority (NAV) started a tax audit against your company?
The first reaction is often to start collecting the requested documents and contact the company's accountant. That is important, but a NAV tax audit is not only an accounting matter. It can also involve significant legal and procedural issues.
For foreign-owned companies operating in Hungary, the situation can be particularly difficult when the management is unfamiliar with the Hungarian tax authority system, procedural requirements and legal deadlines.
The first step is therefore to understand what NAV is examining, what information has been requested, what deadlines apply, and what legal consequences may follow from the procedure.
1. What does a NAV tax audit mean?
A tax audit is an official procedure in which NAV examines whether a taxpayer has properly fulfilled its tax assessment, reporting and related obligations.
The scope of an audit depends on the individual case. It may concern a particular tax, a specific period, or several taxes and periods.
When a company receives the first official notice from NAV, it is important to look beyond the list of requested documents and understand the purpose and scope of the audit itself.
This is particularly important when the audit concerns significant tax amounts, complex transactions or issues involving foreign shareholders or related companies.
2. What should a company do after receiving a notice from NAV?
The first step is to review the official documents carefully and identify all relevant deadlines.
The company should determine:
which taxes are being examined;
which accounting or tax periods are concerned;
what documents and information NAV has requested;
what deadlines apply;
whether additional professional or legal assistance may be required.
Official communications should not be ignored or left for later.
For a foreign-owned company, it can also be useful to make sure that management clearly understands what NAV is requesting and why the requested information may be relevant to the audit.
If the matter raises legal questions, it may be appropriate to seek tax lawyer assistance before responding to more complex requests.
3. What documents can NAV request?
The exact documents depend on the subject and scope of the audit.
Depending on the circumstances, NAV may request information relating to:
invoices and accounting records;
contracts and agreements;
bank-related information;
tax returns;
bookkeeping records;
business transactions;
business partners;
electronic records and other supporting documentation.
The objective should not simply be to send NAV as much information as possible.
The company should respond accurately, systematically and within the applicable deadline, while making sure that the information provided is relevant to the questions raised by the authority.
Where a request is unclear or has potentially significant legal implications, it may be appropriate to review the matter with a tax lawyer in Hungary before responding.
4. What mistakes should a company avoid during a NAV audit?
Several mistakes can make an already difficult tax audit more complicated.
Missing deadlines
Deadlines are an important part of Hungarian administrative procedures. Once the company receives a notification from NAV, all relevant deadlines should be identified immediately.
Disorganized documentation
Sending large volumes of documents without a clear structure can make the process more difficult for everyone involved.
Documents should be organized according to the subject of the audit whenever possible.
Responding automatically to every question
Not every request from NAV is merely administrative.
Some responses can have legal significance later in the procedure. The company should therefore distinguish between routine document production and questions that require legal assessment.
Waiting until a dispute has already developed
One of the most common problems is failing to recognize early enough that a tax audit may develop into a legal dispute.
Early assessment can give the company more time to understand its position and consider the available options.
5. When should a company involve a tax lawyer?
Not every NAV tax audit requires an attorney.
The situation may be different where the audit:
could result in a significant additional tax liability;
concerns disputed transactions or contracts;
involves related companies;
raises complex VAT issues;
involves foreign shareholders or directors;
may be connected to tax number cancellation;
raises questions about legal remedies;
or where the company disputes NAV's findings.
In such circumstances, legal advice can help the company understand its position and determine how the matter should be handled.
The role of the lawyer is not to replace the accountant. Instead, the lawyer can focus on the legal position of the company, procedural questions, representation and possible legal remedies.
For assistance specifically involving NAV representation, a dedicated legal review may be appropriate.
6. Accountant or tax lawyer? Often both.
A company's accountant and lawyer can have different but complementary roles during a tax audit.
The accountant knows the company's financial records, bookkeeping, tax returns and accounting processes.
A tax lawyer can focus on legal questions such as:
the legal basis of the procedure;
the company's rights and obligations;
the legal significance of a particular response;
procedural questions;
possible legal remedies;
and legal representation before the authority.
In a complex case, cooperation between the company's accountant and lawyer may therefore be particularly useful.
7. What happens after the tax audit begins?
Once a tax audit has started, the company should continue to monitor the procedure carefully and keep track of all official communications.
It is also important to understand that tax compliance questions may become more complicated once an official audit is already underway.
For this reason, the company should not treat the audit simply as a document-collection exercise. The legal status of the procedure and the significance of the company's responses should also be considered.
If the audit raises a disagreement with NAV, the company may need to assess the relevant legal remedies and procedural deadlines.
8. What happens when the tax audit ends?
A tax audit may result in a formal decision by the tax authority setting out its findings and any resulting tax consequences.
If the company disagrees with NAV's findings, the decision should be reviewed carefully.
The company may have legal remedies available depending on the nature of the decision and the circumstances of the case.
This is another point at which legal advice can be important.
A NAV decision should not automatically be treated as the end of the matter without first reviewing the available legal options.
9. Why can this be especially important for foreign-owned companies?
A Hungarian tax audit can be challenging for a foreign-owned company for two different reasons.
First, the company must comply with Hungarian tax and procedural requirements.
Second, the foreign shareholder or director may be unfamiliar with the Hungarian tax authority system itself.
This can make clear communication particularly important.
A foreign owner or director may need to understand:
what NAV is requesting;
why the information is being requested;
what documents need to be provided;
what the relevant legal issues are;
what may happen next;
and when legal representation may be appropriate.
For international companies, being able to discuss these issues in English can make the process considerably easier.
Frequently Asked Questions
Is a lawyer required for every NAV tax audit?
No. The need for legal representation depends on the type and circumstances of the audit.
However, legal advice may be appropriate where the matter is complex, disputed or potentially has significant financial or legal consequences.
Can my accountant handle a NAV tax audit?
An accountant can play an important role in preparing accounting and tax documentation and explaining the company's financial records.
Where the matter involves legal disputes, procedural questions or legal representation before NAV, an attorney may also be appropriate.
What should I do if I disagree with NAV's findings?
The first step is to review the relevant NAV decision carefully and determine what legal remedies may be available.
The available options and applicable deadlines depend on the specific case.
When should I contact a tax lawyer?
A company does not necessarily need to wait until a formal dispute develops.
Legal advice can be particularly useful once it becomes clear that the matter involves significant tax exposure, disputed facts, complex transactions, foreign ownership or possible legal remedies.
Can a foreign company receive legal assistance in English?
Yes.
English-language legal assistance can be particularly useful for foreign shareholders and directors who need to understand a Hungarian tax procedure and communicate effectively with their legal representative.
Does Your Company Face a NAV Tax Audit in Hungary?
Do not wait until the situation becomes more difficult.
If your company is facing a NAV tax audit, a tax-related legal issue or a dispute with the Hungarian Tax Authority, early legal assessment can help you understand your position and the options available.
Dr. Gábor Major provides legal assistance and representation in Hungarian and English for businesses operating in Hungary, including foreign-owned companies.
