Participants in Hungary’s economic landscape—whether individual entrepreneurs, micro- and small businesses, or larger corporations—frequently encounter various procedures conducted by the National Tax and Customs Administration (NTCA). These include NTCA compliance reviews, tax audits (e.g., the Tax Audit Process), and the NTCA’s investigative functions, which may lead to Criminal Proceedings in Tax Matters.

These procedures are closely interconnected and often run in parallel. A compliance review or tax audit may initially appear routine, but it can serve as the initial step in a more serious process, potentially involving cooperation with investigative authorities. The interplay between administrative and criminal proceedings raises additional legal questions, such as the ne bis in idem principle, which addresses the prohibition of double jeopardy and punishment.

Economic actors sometimes fail to notice—or only realize too late—that an NTCA investigative procedure is already underway against them. They may become aware of it only when the investigative authority takes concrete actions (e.g., house searches, seizures, or interrogations). Moreover, judicial practice indicates that an administrative penalty, such as a tax fine, does not preclude criminal proceedings, which could even result in imprisonment.

This article aims to provide a detailed overview of the NTCA compliance review, the Tax Audit Process, Tax Authority Fines, Criminal Proceedings in Tax Matters, the ne bis in idem principle, and NTCA investigative procedures, while highlighting how the Molnár & Márk Law Association (hereinafter: Molnár & Márk) can assist in these specialized proceedings.

The Role and Significance of NTCA Compliance Reviews

Definition and Purpose of the “NTCA Compliance Review”

The NTCA compliance review is generally a tool to promote lawful conduct. It is primarily cautionary in nature, with the authority checking, for instance, the accuracy of invoicing and accounting, as well as the regularity and fulfillment of tax returns. Any errors or deficiencies identified during the review are communicated by the NTCA, which calls for their correction or the remedying of omissions.

However, practice shows that compliance reviews can carry stricter implications: in some cases, they serve as a preparatory step for a subsequent—or even ongoing—criminal proceeding. For example, NTCA investigators may coordinate with tax auditors to obtain information about anomalies or irregularities uncovered during the review.

Parallel Compliance Reviews and Criminal Proceedings

It is common for criminal proceedings to arise from findings of a prior NTCA review or tax audit. If the review uncovers data suggesting criminal liability (e.g., issuing fictitious invoices or significant tax evasion), the tax authority may notify its investigative division.

Alternatively, an individual might unknowingly become part of an ongoing criminal proceeding. While a “routine compliance review” appears to be underway, investigative authorities may already be working in the background. During the review, NTCA personnel might pose questions or collect documents in a way that serves evidence-gathering for the criminal case without the affected parties suspecting it.

Added Value of Molnár & Márk in Compliance Reviews

Molnár & Márk’s experts possess extensive experience with various NTCA reviews, including compliance reviews. They can assist in numerous situations where businesses are unsure how to respond appropriately to the authority’s findings or fear that the review might foreshadow a criminal proceeding.

Their assistance includes:

Early involvement of expert legal counsel can often prevent more severe consequences or at least mitigate the severity of sanctions imposed by the authority.

The Tax Audit Process and Its Risks

General Purpose of the Tax Audit

The Tax Audit Process refers to the formal procedure through which the NTCA thoroughly examines a business’s or individual’s compliance with tax obligations. It reviews accounting records, invoices, contracts, the accuracy and timeliness of tax returns, and checks for significant tax evasion or false reporting.

Discrepancies or tax deficiencies identified during the audit—depending on their scale and nature—may lead to substantial financial burdens, Tax Authority Fines, or late payment surcharges. If auditors detect signs of criminal activity, the NTCA is obligated to refer the matter to the appropriate investigative body, potentially triggering criminal proceedings.

Specific Types of Tax Audits

Tax audits may be comprehensive or targeted (e.g., focused solely on VAT). There are also expedited, extraordinary, and priority audits, often initiated with specific suspicions (e.g., significant fictitious transactions or chain invoicing). The depth of the audit may be influenced by the entity’s prior audit history, risk assessment data, and other information.

Impact of Tax Audits on Business Operations

A tax audit can last weeks or even months, placing additional burdens on a business (e.g., ongoing data submission requirements and the involvement of accounting and administrative resources). At the audit’s conclusion, the NTCA prepares a report detailing identified discrepancies and their financial implications. If the company disputes the findings, it has recourse options (comments, appeals, judicial review).

Role of Molnár & Márk in Tax Audits

Molnár & Márk’s expertise extends to tax law representation, offering significant support during the audit phase:

Proper representation significantly increases the likelihood that minor oversights or deficiencies do not escalate into serious matters with criminal risks.

Tax Authority Fines and Their Relation to Criminal Law

Basis and Function of Tax Fines

Tax Authority Fines come into play when a taxpayer commits significant or repeated violations, such as substantial tax deficiencies or acting in bad faith (e.g., fictitious invoicing or fraudulent transactions). The fine’s purpose is deterrence, but it is classified as an administrative sanction imposed by the NTCA within the relevant legal framework.

Judicial practice holds that, due to its financial enforcement nature, this sanction is not equivalent to a criminal penalty, as it can only be executed through monetary means. If a business lacks recoverable assets, the fine cannot be converted into imprisonment, unlike traditional criminal sanctions.

The Ne Bis in Idem Principle and Its Application

The “prohibition of double jeopardy and punishment” (ne bis in idem principle) often arises when a person fined by the tax authority later faces criminal proceedings for the same facts. Domestic and international judicial practice consistently affirm that an administrative tax fine does not preclude criminal proceedings or liability, as the two processes pertain to different legal domains and sanction systems.

Sentencing Practices

In criminal proceedings, judicial practice considers whether the accused has already paid a substantial tax fine. Per Kúria guidelines, it is a mitigating factor if the offender compensates for the damage caused or has faced significant fines in administrative proceedings. This prevents multiple asset deprivations for the same conduct, allowing courts to weigh prior financial obligations when determining penalties.

Criminal Proceedings in Tax Matters – When NTCA Initiates Investigative Procedures

Background of Criminal Proceedings

Criminal Proceedings in Tax Matters become relevant when the authority obtains evidence suggesting criminal activity, such as budgetary fraud, accounting violations, or other offenses under the Criminal Code. Often, the NTCA’s tax division is the first to detect irregularities, prompting the involvement of its investigative unit.

Features of NTCA Investigative Procedures

During an NTCA investigative procedure, financial investigators may undertake actions such as:

Suspects often learn of the procedure only when confronted with tangible actions, such as receiving a summons or facing a house search.

Concurrent Procedures

Compliance reviews, tax audits, and criminal proceedings may occur simultaneously or sequentially in a coordinated manner. In some cases, NTCA tax findings provide the basis for criminal proceedings, while in others, a retrospective tax audit follows an ongoing criminal case to gather additional evidence.

Assistance from Molnár & Márk in Criminal Proceedings

Molnár & Márk’s services extend to tax and economic criminal cases. Their expert attorneys:

Professional criminal defense is critical, as tax and economic cases are highly complex, and authorities are increasingly adept at handling them.

Details and Misconceptions of the Ne Bis in Idem Principle

Core Principle of Double Jeopardy Prohibition

The ne bis in idem principle stipulates that no one may be held accountable twice for the same act. In practice, however, an administrative sanction (e.g., a tax fine) and a criminal proceeding are distinct mechanisms. Courts consistently rule that an administrative penalty does not bar criminal liability.

Proportionality Principle and Practice

Under the proportionality principle, a criminal court must consider any prior financial disadvantages (e.g., a hefty tax fine) when imposing a sentence. This may reduce further asset penalties or fines but does not eliminate the possibility of conducting a criminal proceeding or imposing imprisonment.

Official Letters, Mandates, and Summonses: What to Watch For

Role of Official Notifications

The NTCA notifies affected parties of compliance reviews and tax audits through mandates, informational letters, or summonses, clearly indicating which authority initiated which procedure. However, this does not preclude a criminal proceeding already underway in the background, of which the parties may be informed later.

Implications of Wording

The content of the letter often hints at the focus of the NTCA’s review and the suspected deficiencies. For instance, references to significant tax discrepancies or abuse-suggestive transactions may indicate that the NTCA is also weighing criminal liability, increasing the likelihood of investigative involvement.

Upon receiving a NTCA notification regarding a review or audit, it is advisable to consult an attorney experienced in tax and economic criminal law as soon as possible. Initial statements and documents can be decisive for the case’s outcome, and meeting deadlines is critical. An experienced attorney can help minimize risks and avoid pitfalls that could lead to harsher fines or criminal proceedings.

Conclusion

In Hungary’s tax system, the NTCA compliance review, Tax Audit Process, Criminal Proceedings in Tax Matters, NTCA investigative procedures, Tax Authority Fines, and the ne bis in idem principle are closely intertwined. They may operate concurrently and affect the same business or individual from multiple angles. A seemingly routine review can lead to significant criminal consequences or unveil an already discreetly ongoing investigation.

NTCAigating this legal maze is highly complex, making expert legal support essential from the outset. Molnár & Márk provides comprehensive legal services covering prevention, preparation for audits, recourse options, and criminal defense.

(The above material is for informational purposes only and does not constitute specific legal advice. For individual cases, seeking legal assistance, such as from Molnár & Márk’s experts, is recommended.)