Mária Lakatos

Taxation in General: Hungarian Tax System

Scope of those liable to pay VAT and reverse taxation

In the standard case VAT is calculated by the seller of the product or the provider of the service and it shall be the same person, who shall collect it from the end customer and make accounts for the amount of the VAT with the state budget. This is the so-called ordinary VAT scheme. Reverse taxation, on the other hand is becoming all the more widespread. In Hungary, until 2008 it was applied only in special cases of cross-border services. From 2010, in compliance with the EU regulations this taxation form applies to all services, as a general rule across the border. Now, however, predominantly we shall discuss taxation rules in Hungary.

In case of the ordinary VAT scheme (ordinary taxation) the value-added tax shall be established based on the tax base, then charged and collected from the end user by the tax client (tax subject) obliged to collect the VAT on the sale of commodities or the provision of services according to the rules of ordinary taxation.

Definition

Reverse charge taxation: In case of reverse taxation, the law transfers the tax liability from the seller of the commodities or the services provider to the purchaser of the commodities or the person who avails himself/herself/itself of the services.

According to the rules of reverse taxation it shall be the purchaser of the commodities or the person availing himself/herself/itself of the services who establishes the tax payable, which means that the principal shall calculate and pay the tax, in which case the person bearing the tax burden and the payer of the tax are that and the same persons! At the same time, presuming that all other conditions prescribed for it subsist, the purchaser can deduct the VAT included in his/her/its tax returns as the product or service purchased thereby classifies as procurement. From the point of view of the enforcement of the tax deduction right, the same rules apply to taxes determined according to the rules of reverse taxation as to the input tax charged by another tax client.

Two groups of transactions fall under the effect of reverse taxation. As we have already mentioned, in the first one the tax client is non-resident. He/she/it gets into contact with the Hungarian services provider as Principal ordering services, but insofar as he/she/it shall incur no tax liability in Hungary, the non-resident tax client (the Principal, in our case) is exempt from the obligation to register as a taxpayer and also from the tax liability he/she/it would be subject to by virtue of being a tax client. The main rule in this case is, that the foreign Principal shall charge on himself/herself/itself the VAT, i.e., the Principal is the tax client, but this works only if the other contracting party has a VAT number.

The other group of transactions falling into the scope of reverse taxation are transactions in Hungary, among tax clients registered in Hungary. According to the official reasoning, the introduction of reverse taxation for domestic transactions serves, among others, the protection of the revenues of the budget. This is supported by the fact that, as first subjects of this tax payment form, the constructing activities were included in this circle, where the Principal paid the VAT charged by the investors and the constructing companies, but these latter did not remit its amount to the budget, but on many occasions, declaring bankruptcy, they have simply disappeared.

From among the transactions concluded between domestic tax clients, the following fall, among others, into the scope of the reverse taxation scheme:

product sales generated by the execution of building-assembling works, and materializing in the form of handing over of an immovable property to be registered in the Land Register,
building-assembling and other assembly works, classifying as provision of services, and aimed at the building, enlargement or transformation of an immovable or changing it in any other way whatsoever,
outsourcing or stationing labour for the sale of products or the provision of services described above and the provision of staff.

A prerequisite to reverse taxation is that the parties involved in the transaction should all be tax clients registered in Hungary and none of them should have a legal status based whereupon the payment of the tax could not be claimed from this person.

Taxation in General: Hungarian Tax System

Tartalomjegyzék

Kiadó: Akadémiai Kiadó

Online megjelenés éve: 2022

ISBN: 978 963 664 137 5

Taxation is a scheme for the state to provide revenue. The so collected money could then cover the public spending of the government. These are the so-called allocative and redistributive functions of the state budget. Although, taxation theory discusses the various tax types and analyses the various taxation tools very extensively, there is no absolute answer to the question, when and what type of taxation system would be optimal. Thus this introductory book on taxation deals with the three basic types of taxes - the income tax, the VAT and the corporation tax - in a very pragmatic way. There are legal texts and cases from both the international and also from the relevant Hungarian practice.

This book is recommended not only for students of economics but also for law students and practitioners beside anyone who is interested in the basic regulations of taxation.

Hivatkozás: https://mersz.hu/lakatos-taxation-in-general-hungarian-tax-system//

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