In our below article we would like to give you an overview about the right of taxpayers and their representatives to inspect the documents of procedures going on in front of the tax authority (audit process, enforcement procedure etc.), and the content (scope) of this right. We briefly inform you, in respect of what documents this right may be restricted or refused by the tax authority, and we give you an answer to such typical questions like are we allowed to make a digital photo of the respective documents?
Scope of Taxpayer Rights
It is important to note that the right of inspecting the documents is granted to the taxpayers in every phase of the procedure, and this right may be exercised without limitation, therefore the tax authority must enable the exercising of this right, and may deny it only in respect of those documents which are specified by laws. In this case the tax authority has to list by item those documents which were not handed over, and has to indicate the reason of refuse in its written decision. Besides the above, the tax authority prepares a report regarding the inspection of documents.
The taxpayer is entitled to the knowledge of documents connected to taxation. He may inspect any document and ask for a copy, which is necessary for him to enforce his rights, or to fulfil his obligations. In case of a witness the law is not that permissive, hence the witness may inspect only the testimony, and the holder of an object subject to a review may only inspect the document about the review.
Restrictions on Document Inspection
Other persons may only inspect documents which contain personal data or information protected by laws (hereinafter: protected data), if he verifies, that the knowledge of the data is necessary for him to enforce his rights, or to fulfil his obligations based on applicable laws, administrative or court decisions.
According to the above, the taxpayer is entitled to inspect all documents of the tax audit, tax procedure going on against him, with the following exhaustive exceptions:
According to section 43 of the tax procedure act, the taxpayer may not inspect the following documents:
- internal email communication of the tax authority of first and second instance regarding the preparation of a decision,
- information request of a foreign country in course of international information exchange,
- proposal of a decision,
- minutes (reports) which contain personal data of other participants of the proceeding, if the tax authority ordered the closed (secret) treatment of such data,
- according to the act on the protection of qualified data, if the personal conditions are not met, documents which contain qualified data,
- documents which contain protected data, if the act which protects the respective data excludes the inspection,
- that part of a document, which contains data of another person qualifying as tax secret.
Legal Changes in Document Inspection
The above law is in force and effect as of 2018, and has restricted the cases of inspecting documents. The previous regulation also contained, that the taxpayers may not inspect e-mails regarding the decision preparation and proposals of the tax authority of second instance. There is neither a change in respect of the documents containing personal data of private persons, hence this does not mean that we are not entitled to inspect the full document, only the inspection of that part which contains personal data is restricted, practically this means that the tax authority covers such parts before the handover. There is neither a change in respect of the inspection-prohibition of those documents which contain qualified or protected data, hence these are typically those documents which contain state secret, and their occurrence in a tax procedure is typically pretty seldom.
Restrictions on International Information Exchange
It is an important change, that the inspection right may not be exercised in respect of documents qualifying as international information exchange and in respect of requests from other states. These mean the so-called “SCAC” requests, when the tax authority contacts the tax authority of another state which is part of the information exchange agreement, regarding information which is in the possession of that respective tax authority, and the knowledge of this data is required for a reasonable decision (finding). If such a request (query) comes from the tax authority of another state, the inspection right may not be exercised.
Timing and Restrictions on Information Requests
In connection with the above there is a regulation in effect as of 2018, according to which the taxpayer may inspect the information request sent in course of international information exchange only subsequent to the arrival of the answer.
For instance, the Hungarian tax authority is auditing a Hungarian company, which had business relationship with foreign companies. To map the aforementioned, the tax authority will send a so-called SCAC request with specific questions to a foreign tax authority. The representative of the Hungarian company may go to the tax authority and inspect the questions sent to the foreign tax authority, and forward them to his foreign partner. Therefore, the foreign partner will know exactly in advance (before the takeover of the summon from its domestic tax authority) to what questions he has to answer, which transactions are affected by the questions, and what preventive anti steps he may should take. To avoid the above practice, the taxpayers may only live with their inspection right subsequent to the arrival of the foreign tax authority’s answers.
Other Restrictions During Audit Procedures
The inspection right regarding documents qualifying as providing information may also be restricted until the start of the audit, if it is likely, that their knowledge would endanger the success of the future audit. The tax authority shall always issue an order with a reasoning regarding the restriction of the inspection right.
Costs of Document Inspection
It is important to underline, that in course of inspecting the documents there can be for instance in course of a tax audit more thousand pages of documents. If the taxpayer asks for a copy, he has to pay a stamp duty of HUF 100 for each page, but making digital pictures of the documents is free of charge.
Frequently Asked Questionsabout this topic
What does the taxpayer's right to inspect documents mean in a tax audit or tax procedure, and when can it be exercised?
Taxpayers (and their representatives) may inspect documents connected to their taxation in every phase of the procedure. The authority must enable inspection, and it may restrict access only to documents explicitly excluded by law.
Which documents can the tax authority refuse to disclose under the Tax Procedure Act (Section 43)?
Typical exclusions include internal decision-preparation emails, draft decisions/proposals, certain minutes containing other participants' personal data, classified/protected data, and parts containing another taxpayer's tax secret, as well as documents relating to international information exchange.
Can you request copies of tax authority documents, and what is the difference between inspection and receiving copies?
Yes. You may request copies of documents needed to enforce your rights or fulfil obligations. Inspection provides on-site access; copies provide take-away documentation, usually with redactions where protected data must be withheld.
Are digital photos allowed during document inspection, and what limits may apply in practice?
Digital photos are generally permitted, but the authority may restrict photographing protected/closed parts and may set practical rules to protect personal data and the integrity of the file. If access is restricted, it should be recorded and justified in writing.
What are SCAC requests and international information exchange documents, and when can access be restricted?
SCAC requests are international information exchange queries between tax authorities. Access to these documents is restricted: typically, the taxpayer may inspect the outbound request only after the foreign authority's reply arrives, and some information exchange documents may be excluded by law.
What does document inspection cost (e.g., HUF 100/page), and what should you do if access is restricted?
Inspection itself is usually free, but requesting paper copies may involve a stamp duty (commonly HUF 100 per page). If the authority restricts access, request the written decision listing the withheld items and the legal reason, and consider legal remedy with counsel.