VAT Due Diligence

This brochure outlines the opportunities within our VAT audit service, which helps uncover and minimise the risks and possible errors in VAT documents and declarations prior to the audit of the tax authority.

Why do we recommend our VAT audit service?

Our experience shows that a number of businesses use the regulations in the EU directive and in Hungarian laws inaccurately and, as a result, pay either more or less tax than required. Precise knowledge and information of EC and Hungarian VAT rules requires special expertise, which cannot be expected from companies without a sizeable team of tax experts in today’s business environment where quick decisions are needed.

To whom do we recommend this service?

We recommend this service to businesses who would like to present their VAT declarations and the supporting records to the tax inspectors well-prepared and with sufficient knowledge about the possible risks, and also to those who would like to get accurate information as to whether their documentation methods have any risks or hidden reserves, and if so, what type.

What are the benefits of this audit?

The primary objective of the service is to help minimise the fines imposed by the tax authority, by reviewing the internal processes of transactions and businesses. Our findings may even contribute to a more efficient optimisation of your cash-flow obligations. By using the findings and any proposals for modification by the audit, you can ensure that the procedures used for invoicing and the acceptance of invoices comply with the legal requirements, and follow up any changes in the law in an accurate and timely manner.

• Missing and/or inaccurate contracts behind certain transactions. If there is no contract, the tax deducted from the accepted invoice may be rejected, which results in a tax fine on tax arrears and default interest.
• Missing verification of the conditions for tax-free sales. In this case, the tax authority rules that the sale is taxable and imposes a subsequent tax, which may involve tax arrears, tax fine and default interest.
• EU transactions do not converge in every member state. The VIES control data do not support the authenticity of the EC transactions declared. In the course of their cooperation, the tax authorities of the member states share the summary declarations of their respective businesses and thus soon find out if the parties do not declare certain transactions or declare them in different values. In such cases, the tax authorities may initiate tax audits at any of the affected businesses to clarify the reason for the contradiction.
• Late or inaccurate application of changes to the VAT act, resulting in invoices issued or accepted using incorrect tax rates. In this case, the tax authority may impose a default fine for every single invoice on the party issuing such invoices. As for the party accepting such an invoice, the tax authority may reject the tax deduction, which may result in a tax fine on tax arrears and default interest. It is an extermely high risk in the beggining of 2012 - as the VAT rate has changed from 25 to 27% -, so the coorectness of the incoming and outgoing invoices' VAT rate should be highly monitored based on the transitions rules.
• Providing the inspectors with documentation that is defective or improperly aligned and/or delaying access to such documents. In such cases, the tax authority may impose a default fine for obstruction of the audit.

Why should you use our service?

1. The tax experts of RSM DTM Hungary Zrt. are exceptionally well qualified and have many years of professional expertise. They have a thorough understanding of Hungarian and international VAT laws, and the regulations and international practice concerning their individual and joint application.
2. We personally monitor the audits of our clients by the authorities. Several of our colleagues have extensive experience as tax inspectors and have personally supported our clients in a number of tax audits. Our colleagues have detailed knowledge of tax audits.
3. We also remain in contact with our clients after the audit, and are happy to help them with any questions or new types of transaction they may have in order to implement an appropriate administrative system.
4. Within the international network of RSM International, we can contact our expert colleagues in 80 countries around the world to fully clarify our client’s questions.