Tax Office investigations on Community sales are becoming more frequent

The supply of goods within the Community, i.e. when goods are dispatched or transported from the country as a result of the sale to the territory of another member state of the Community (regardless of whether the shipment or transport is carried out by the seller, the purchaser or – for the benefit of any of them – by someone else), is exempt from VAT if the following conditions are met:

• the dispatch or transport of goods to another Member State is proved/verified,
• the goods are supplied to another taxpayer acting not in Hungary as a taxable entity but in another Member State of the Community or to a non-taxable legal entity registered and obliged to pay tax in another Member State of the Community,
• the above-defined person (customer) has a tax number in another member state of the Community and has informed the seller about this tax number,
• the taxpayer supplying goods fulfills his obligation to submit the A60 summary statement flawlessly and completely, or proves that the omission, error or deficiency concerning the summary declaration occurred in good faith, and at the same time provides the Tax Office with all the data necessary to establish the complete and correct content of the summary statement.

All the above-written is involved in the Act on VAT of Hungary, however, it does not regulate the method of proving the dispatch or transport of the goods to another member state, it is included in the EU VAT Implementation Regulation (VHR). The VHR establishes a rebuttable presumption as to when the product is considered to have been dispatched or transported from one Member State to another. However, it is important to point out if the taxpayer does not have certificates required for proving the existence of the presumption under the VHR, it does not automatically mean that the delivery of the product is not certified, and therefore cannot be exempt from tax. Taxpayers still have the option to prove that the product has been shipped or transported to another member state, in other ways as it is specified in VHR.

With regard to the tax exemption for the supply of goods within the Community, it must be assumed that the product was dispatched or transported from a member state to a place outside its territory but within the territory of the Community in any of the following cases (1. or 2.):

1. If the seller or someone else on his behalf dispatches or transports the product
The seller indicates this fact and has at least two non-contradictory documents issued by two different parties independent of each other and of the seller and the purchaser, as follows: two of those listed in point A below; or with one of those listed in point A and point B.

2. If the purchaser or someone else on his behalf dispatches or transports the product
The seller has a written statement from the purchaser stating that the product was dispatched or transported by the purchaser or a third party acting on behalf of the purchaser, and which states the country of destination of the product.

The written statement must include:

• the issuing date;
• name and address of the purchaser;
• the quantity and nature of the goods;
• the date and place of arrival of the goods;
• if a means of transport is sold, the identification number of the means of transport;
• the identification of the person receiving the products on behalf of the purchaser (any data that clearly identifies the person and can be checked afterwards is suitable).

In this case, it is also a condition that the seller should have two of those listed in point A below; or with one of those listed in point A and point B.

Documents under Point A

Documents on the dispatch or the transportation of the goods, such as:

• signed CMR document or CMR waybill,
• bill of lading,
• air freight invoice,
• invoice issued by the transporter of the goods.

Documents under Point B

• insurance policy for the dispatch or transport of the products, or bank documents confirming the payment of the dispatch or transport of the products,
• a public document issued by a public law authority, for example a notary public, certifying the arrival of the products in the destination Member State,
• acknowledgment of receipt issued by the warehouse operator in the destination Member State, which proves the storage of the products in the given Member State.

Therefore, if the seller has the listed documents, the delivery is presumed to have taken place, and if the other requirements of tax exemption according to the VAT Act are also met, the transaction can be treated as tax-free. Therefore, the tax authority cannot request additional proof of delivery from the taxable person supplying the goods The presumption must be rebutted by the tax authority if it wants to make a damning finding.

However, even in the case of a small-scale community transaction, it is definitely worth setting up a suitable documentation system and keeping the necessary background records up-to-date, which can be sent to the tax office without delay if any tax audit is held. Collecting these documents regarding the past can be quite time-consuming and in the absence of documents, the application of the tax exemption can easily be questioned by the tax office.

If we can help you in the development of the above-mentioned documentation system or in checking the legal compliance of the currently applied system, please feel free to contact our colleagues.