Taxation permeates every aspect of modern economic activity, down to the smallest detail, so many in business are concerned about when and how much tax they have to pay, what substantive rules impose tax obligations and –  where possible – how they can optimise their tax liability. In contrast, the rules of the tax procedure concerning registration receive less attention, even though there may come a time in the life of every company when it causes serious problems that the tax authorities identifies an obstacle to the establishment of a tax number.
It should be noted that compliance with the conditions of the tax registration procedure must be checked not only at the start of the business, i.e. when the company is set up, but also when the representative or controlling shareholder changes. In such a case, the tax authority will carry out a tax registration procedure linked to the change notice and, if the revision procedure reveals the existence of a tax registration obstacle, it will cancel the company’s tax number if the obstacle is not resolved.
The tax registration procedure connected to the change notice can therefore put companies for sale in an extremely difficult situation where there is an impediment which could result in the entire transaction being frustrated. Furthermore, the tax authority’s request for the removal of the obstacle may arrive after the conclusion of the contracts and creditor agreements relating to the transfer of shares and the approval of the commercial court, thus reducing the taxpayer’s room for manoeuvre considerably. In practice, it is therefore possible for a company to purchase a share in another company on a bank loan and then, after the change of member and the registration of the pledge on the share, to find that the new member is subject to a tax registration obstacle, with the negative consequence that the tax number of the “innocent” company is cancelled, unless the company with the obstacle disposes of its share.
The following is a brief description of the types of tax registration obstacles and possible ways of avoiding them.

Obstructive circumstances
Act CL of 2017 on the Tax Code (the “Art.”) distinguishes between impediment circumstances relating to an officer or member (shareholder) and circumstances relating to companies that can be associated with such persons. According to the first category of provisions – related to the person – the officer, member or shareholder must not have a long-standing tax debt exceeding HUF 5 million (HUF 10 million for the largest taxpayers) or be disqualified from holding a position as an officer or from engaging in any occupation on the date of filing the application for a tax number.
However, it is more difficult to ascertain the existence of the three specific disqualifying circumstances relating to the above categories of persons. The following cases are considered by the Art:

1. on the date of the application, a position as an executive officer or member of a company with tax debts exceeding HUF 5 million (HUF 10 million for the largest taxpayers),
2. in a company that has ceased to have a executive officer or membership status within five years prior to the date of the application that has tax debts exceeding HUF 5 million, or
3. within the five years preceding the submission of the application, a executive officer status or membership in a company whose tax number has been cancelled by the tax authority.

In view of the above, we therefore consider it important to draw attention to the fact that it is worthwhile to specifically examine whether the purchaser is subject to any impediments under Art.

Rescue options
The law allows taxpayer relief only in a narrow range of cases: if the taxpayer can credibly prove that the impediment does not exist or that the tax debt is due to the unpaid consideration of the customers of the impediment company. The Art. also allows for the possibility of the party concerned to remove the obstacle by paying the debt in the meantime, but only if the company which is the obstacle carrier has not yet ceased to exist – i.e. only in the case referred to in a) above. If the tax debt is due to the fact that the chargeable company has a significant amount of outstanding debts, it is not sufficient to prove this fact in order to obtain relief, but it must also be shown that the company has made every effort to enforce the debt, i.e. that it has sent demand letters and taken other necessary legal steps (e.g. by means of an order for payment or by initiating liquidation proceedings).
From a practical point of view, the above means that if the impediment relates to a company that has already ceased to exist, the taxpayer will not be able to apply for a relief.
It can therefore be concluded from the above that it is worth paying particular attention to the examination of possible impeding circumstances prior to the sale or acquisition of a company, thus reducing the risk of any subsequent action by the tax authorities.

The content of this post does not constitute legal or tax advice and does not create an engagement. In each case, detailed knowledge of the individual case is necessary to assess it and to find a tailor-made solution. If you have any questions, please do not hesitate to contact us at http://www.bekespartners.com/.