Procedural rules that have entered into force in recent years have fundamentally changed litigation in Hungary. This is especially true for tax litigation.
The new rules have forced companies, tax advisors, and legal representatives to reshape their strategies for tax disputes.
If a taxpayer does not agree with the resolution of the respective first instance tax authority and files an appeal, the second instance tax authority must review the entire previous procedure. If the taxpayer does not agree with the resulting second-instance decision, it has 30 days to file a judicial review claim against the tax authority.
Under new legislation and case law, the general approach – that a taxpayer and its tax advisor deal with the tax authority, and only then, the moment the second-instance resolution arrives, have a legal representative take over the handling of the case in front of the court – has become outdated.
In court, as a general rule, parties may no longer rely on the facts, circumstances, and evidence that were available at the time of the administrative proceedings. Moreover, in tax authority procedures, this restriction applies in appeals: the facts and evidence that were available to the involved taxpayer during the first instance procedure, as a main rule, may no longer be brought into the procedure.
The new procedural rules have also significantly restricted the strategy for shaping the legal arguments. As any legal arguments must be based on the facts and circumstances available, the essential aspects of the legal arguments must have already been mentioned in the administrative proceedings. The directions of judicial review are determined only by the arguments presented within the 30-day time limit for submitting a judicial review claim.
Contrary to the previous practice and case law, the introduction of new aspects into a legal dispute after the 30-day deadline now qualifies as a prohibited amendment of claim. Thus, for example, previously, if a tax resolution was passed on value added tax and corporate tax and the judicial review claim was filed only in respect of findings relating to the value added tax, it could no longer be extended to corporate tax, after the time limit for submitting a judicial review claim had passed – but it was at least possible to amend the legal arguments in the field of value added tax. According to recent case law, this is no longer possible either.
In other words, after the expiration of the time limit for submitting a judicial review claim but before the end of the first court hearing, it is only possible to clarify and expand on arguments that had already been presented during the time for submitting the judicial review claim.
One of the recent published decision of the Curia reinforces this rule, and it appears, based on the Court’s ruling, that not only arguments concerning facts, circumstances, and evidence, but even subsequent submissions of legal arguments may be more restricted. Consequently, all aspects of subsequent legal arguments must have been included in the tax authority procedures.
In short, neither the elaboration of a legal argument nor the gathering and processing of evidence may be postponed to the time of a subsequent judicial review, and failure to observe these rules significantly reduces the chances of winning on judicial review.
In view of these new features, coordinated cooperation between taxpayers, tax advisors, and legal representatives is required from the very moment the tax authority initiates its procedure.
By Daniel Kelemen, Partner, and Balazs Balog, Attorney at Law, PwC Legal Hungary