April 2023

Tax fraud in Hungary is called ‘budget fraud’ which bears a broad definition making it possible to give rise to criminal proceedings in any case where the Hungarian central budget and any sub-system of the latter (including budgets of social security funds and extra-budgetary funds, funds managed by or on behalf of international organizations or the EU) suffers a ‘financial loss’. In ac-cordance with the terms of the Hungarian Criminal Code, a financial loss would mean any loss of revenue stemming from non-compliance with any budget payment obligation, as well as the claim-ing of funds from a budget unlawfully or the use of funds paid or payable from a budget for pur-poses other than those authorized. This could occur by inducing a person to hold or continue to hold a false belief, or to suppress known facts in connection with any budget payment obligation or with any funds paid or payable from the budget, or to make a false statement to this extent, or by unlaw-fully claiming any advantage made available in connection with budget payment obligations, as well as by using funds paid or payable from the budget for purposes other than those authorized. These will apply if the above described activities or omissions cause a financial loss to one or more budgets. Budget fraud is punishable by imprisonment for up to 10 years. For further examples of budget fraud, see Question 6.

The budget fraud's criminal threshold is HUF 500,000 (approx. EUR 1,250) financial loss caused to the budget.

Yes, only if the perpetrator does not fulfil its tax penalty payment obligation intentionally and fraudulently, and by this, it causes a financial loss to the budget, this might trigger a criminal pro-ceeding. Otherwise, normal tax penalty itself does not trigger criminal proceedings.

The criminal intention is a requirement of a criminal offence. The perpetrator's mere negligence cannot indicate a criminal proceeding, but an infringement procedure could be initiated.

In the case the tax authority does not even suspect the budget fraud and as a result no investigation started, even the taxpayer's late filing or the submission of a self-revised tax return and the pay-ment of the applicable tax would eliminate the initiation of a criminal proceeding. However, if the investigation started, but before the submission of the indictment, late filing or self-revision does not eliminate the criminal proceeding. In the latter case, the payment of the financial loss might be a solution, which is detailed in Question 11.

Budget fraud

Yes, budget fraud charges may be alleged and prosecuted by the public prosecutor if the taxpayer:

1. intentionally induced another person to hold or continue to hold false beliefs or make false statements or conceal facts regarding budget payment obligations or refunds from the budget;
2. unlawfully claims any advantage made available in connection with budget payment obligations;
3. uses funds paid or payable from the budget for purposes other than those authorized;
4. intentionally manufactured, obtained, held, sold or distributed excise products without legal basis or authorization;
5. intentionally did not properly account for funds from the budget or did not provide information regarding thereof, made false declaration or used false documents regarding thereof.

and thereby causes at least HUF 500,000 (approx. EUR 1,250) amount of financial loss to the budget.

Breach of Accounting Regulations

Yes, violation of accounting obligations charges may be alleged and prosecuted by the public prosecutor if the taxpayer violated invoicing, reporting or bookkeeping obligations and induced an error, materially effecting the true and fair view, or obstructed the transparency or the audit of the financial situation of the taxpayer.^[1]

If the tax auditor suspects that the taxpayer is involved in intentional budget fraud, the tax authority may file a report against the taxpayer with the competent department of the tax authority. As a result, the tax authority will initiate an investigation against the suspected taxpayer. The criminal procedure will be initiated - upon the evidence gathered by the tax authority - by the public prosecutor.

[1] For the purposes of Breach of Accounting Regulations ‘error construed as having a significant impact on true and fair view’ shall mean if the total of all errors (whether negative or positive) for a given financial year and the impacts thereof - increasing or decreasing the profit or loss or the equity - exceeds twenty per cent of the net sales revenue shown in the financial report for the financial year when the error was made, as well as twenty per cent of the balance sheet total. If the total of all errors (whether negative or positive) for a given financial year and the impacts thereof - increasing or decreasing the profit or loss or the equity - exceeds five hundred million forints (approx. EUR 1,250,000) shall be treated as an error construed as having a significant impact on true and fair view in all cases.

Prosecution is barred upon the lapse of time equal to the maximum penalty prescribed, but not less than five years.

The first day of the period of limitation is:

a) in case of a completed criminal act, the day when the crime is actually committed;

b) in case of attempt and preparation, the day when the act resulting in consequence is carried out;

c) in case of an act that is considered a criminal offense only if relates to a breach of duty, the last day that of which the perpetrator has to discharge his duty without the consequences;

d) in case of criminal offenses which manifests in the maintenance of an infringement, on the day when the infringement ceases to exist.

As regards the budget fraud, the criminal act is completed when the financial loss occurs.

As regards for tax fraud's basic cases mentioned in Question 6 a)-e) the sentence could be penalty by imprisonment from three months up to 10 years. On the other hand, breach of accounting is punishable by imprisonment for a maximum period of three years.  The variations of punishments for budget fraud is can be summarized in the table below:

There is no mitigation program as such running in Hungary as of now.

Yes, as regards for budget fraud, the criminal sanction may be reduced without limitation if the perpetrator provides compensation for the financial loss caused by the budget fraud before the in-dictment. This rule, however, will not apply if the criminal offence was committed in a criminal association with accomplices or in the framework of a criminal organization or by a habitual recid-ivist (perpetrator of a crime of intent if they were previously sentenced to an executable term of imprisonment for a crime committed intentionally, three years have not passed since they had served their sentence and now they intentionally commit a crime again that is at least similar in nature).

There is no first-time offender rule in Hungary, however, it might mitigate the applied penalty. As regards budget fraud, the penalty may be reduced without limitation if the perpetrator provides compensation for the financial loss caused by the budget fraud before the indictment submitted by the prosecutor to the court.

The crime's statute of limitation shall be interrupted by any action of the court, the public prosecutor’s office, the investigating authorities, or - in international cases - by the minister in charge of the judicial system or the competent foreign authority taken against the perpetrator in connection with the crime. The period of limitation shall restart on the day of the interruption. But it does not have impact on the tax authorities' statute of limitation as the administrative procedure and the criminal procedure are two different procedures.

It does not matter whether a criminal or an administrative proceeding is initiated as a first measure, underpaid taxes must be paid to the state’s budget. However, once the taxes the perpetrator missed to pay have been duly paid, they ought not to pay the same amount again. Nevertheless, the fact that the perpetrator has paid their due underpaid taxes, does not exempt them from being a subject of a criminal prosecution possibly resulting in the imprisonment of his or her. On the other hand, late fulfillment of their tax obligation might mitigate their punishment

Before the submission of the indictment, the perpetrator might pay the caused financial loss before the submission of the indictment (Question 11) or there is a chance to settle an agreement with the prosecutor. However, the latter is very exceptional, and could only happen if the perpetrator coop-erates with the prosecutor in order to explore other more serious crimes and pleads themselves guilty. After the indictment has been submitted to the court, the prosecutor might offer that if the perpetrator pleads themselves guilty, and waives the trial, the court is not able to impose more se-vere penalties than the prosecutor offers at the preliminary hearing.

Only individuals could be perpetrators, but some sanctions could be applied on companies as well under certain circumstances (see Question 18).

Yes, foreign persons could be also prosecuted.

A company might be ceased, its activity might be restricted, or a fine might be imposed on the company if its employee, or any person related to the company intentionally commits budget fraud, and if the commission of the criminal offence was intended or resulted in gaining an advantage for the benefit of the company or the criminal offense was committed with the use of the company. The maximum amount of the fine imposed on the company could be three times the loss caused to the budget, but at least HUF 500,000 (approx. EUR 1,250). According to Hungarian jurisprudence, once the circumstances and facts of a budget fraud get recognized by the public prosecutor, both the prosecution of the directors in place and the proceeding to impose these sanctions on the company are usually initiated at the same time.

No significant increase in the prosecution for tax offenses can be observed over the last five years.