Testimony, declaration in front of the tax authority.
What is the difference if we make a declaration as a client or as a witness?
In course of tax audits, when the tax authority is examining certain transactions according to its statement of facts clearing obligation, it collects documents regarding the transactions, and makes a hearing with those persons, who have relevant information regarding the respective transaction. Hence, in the latest case it is definitely not irrelevant, whether the tax authority requests a declaration in written or in oral form, whether as a witness or as a client, as other rights and obligations apply to the persons subject to the hearing.
The cooperation with the tax authority, the underpinning of the transactions with declarations is also the interest of the taxpayer subject to the audit, but this does not mean that we may not signalize politely, that the hearing of a certain person should be carried out in another form/manner, as the practice of the tax authority in this respect cannot be regarded as consequent. In general it can be stated that it is more advantageous to answer the questions of the tax authority in a written form, as in this case we have more time to give detailed, accurate answers, what we should strive for. If a taxpayer acts in god faith in the way the tax authority wants him to act, an undetailed, inexact declaration may be used in the future by the tax authority for underpinning its findings.
If someone has or had no contractual relationship with the taxpayer subject to the tax audit, but apart from this may have information regarding a transaction, the tax authority may oblige him to make a testimony according to section 62 of Act CLI of 2017 on the Procedural Order of Taxation (hereinafter POT Act). The affected person must make a testimony, unless the witness cannot be interrogated, or he may lawfully deny the testimony according to section 62 subsection 2-3 of the POT Act.
In respect of the testimony it is important to take into account that it is basically the decision of the tax authority, whether it wants to have the testimony of the witness in a written or in an oral form. Even after the takeover of a citation for personal appearance there is a possibility by the affected person to request a written testimony, as pursuant to section 63 subsection 5 of the POT Act the tax authority may allow the witness – after or instead of the oral hearing – to make a written testimony.
In respect of the personal (oral) declaration we have to mention that the witness may take a representative. Although the representative may not make the declaration instead of the witness, but it may warn the witness about its rights, and on the other hand it is also important to mention that the employees of the tax authority show a more objective attitude if a witness is using a representative. Besides the above, the taxpayer subject to the audit may also represent himself during the hearing of the witness, he may ask questions from the witness, and if necessary, he may make remarks on the testimony.
This legal instrument makes much more trouble in practice compared to the testimony. First of all we have to make a difference between a declaration made in our own case or in the case of another taxpayer.
In the case of another taxpayer, if somebody has or had a contractual relationship with the taxpayer subject to the audit, the tax authority may oblige him to make a declaration pursuant to section 60 of the POT Act. The declaration may be refused, if the person obliged to make a declaration could not be interrogated as a witness, or could refuse the testimony.
In case of a declaration made in course of another taxpayer’s audit it may cause discrepancy, if the tax authority sends a summon for personal appearance pursuant to section 60 of the POT Act, as the affected person must follow the summon and appear in front of the tax authority, hence the tax authority will call him to make a declaration pursuant to section 60 of the POT Act, which means/covers the written form of the declaration.
Irrespective of the above, anybody may decide to make a personal declaration in front of the tax authority, but he should consider, that nobody can be obliged to do so, as in the case of another taxpayer the tax authority may only oblige the taxpayers in a written call to make a declaration.
Declaration in our own case, providing explanation
In case of a declaration in our own case, the tax authority uses to neglect further legal provisions. In this present article we don’t want to make a detailed, theoretical legal analysis, but we have to make a clear difference between the rights of the taxpayers and the rights and obligations of the tax authority.
The taxpayer affected by the audit has the right to make a declaration in course of the audit, this right has to be granted by the tax authority as well. Hence, this does not mean, that the tax authority may oblige the taxpayers to make a declaration, especially not a personal one. In many cases the tax authority sends a summon to the taxpayers affected by the audit or to their managing directors to make a personal declaration pursuant to section 59 of the POT Act, but in fact the tax authority has no right to do so.
The audit is a special tax administration procedure, to which special provisions apply detailed in the POT Act and its enforcement order, according to which the tax authority has the right in course of the tax audit to request an explanation from the taxpayer, its representative or employee.
As other rights and obligations apply to a witness, to a person obliged to make a declaration or to a person from whom the tax authority may request explanation, it is always worth to be aware of our procedural rights.
21. January 2020
Dr. Roland Márk attorney at law & Dr. Árpád Molnár attorney at law, tax advisor