Hungary
This report analyses the implementation of the AEOI Standard in Hungary with respect to the requirements of the AEOI Terms of Reference. It assesses both the legal frameworks put in place to implement the AEOI Standard and the effectiveness of the implementation of the AEOI Standard in practice.
The methodology used for the peer reviews and that therefore underpins this report is outlined in Chapter 2.
Overall findings
AEOI legal framework
Hungary’s legal framework implementing the AEOI Standard is in place but needs improvement in order to be fully consistent with the requirements of the AEOI Terms of Reference. While Hungary’s international legal framework to exchange the information with all of Hungary’s Interested Appropriate Partners (CR2) is consistent with the requirements, its domestic legislative framework requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures (CR1) has deficiencies significant to the proper functioning of elements of the AEOI Standard. More specifically, Hungary’s legal framework includes four categories of jurisdiction-specific Excluded Accounts that are not in accordance with the AEOI Standard.
Overall determination on the legal framework: In Place But Needs Improvement
Effectiveness of AEOI in practice
Hungary’s implementation of the AEOI Standard is on track with respect to the requirements of the AEOI Terms of Reference to ensure the effectiveness of the AEOI Standard in practice. This includes ensuring Reporting Financial Institutions correctly conduct the due diligence and reporting procedures (CR1) and exchanging the information in an effective and timely manner (CR2). Hungary is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
Overall rating in relation to the effectiveness in practice: On Track
General context
Hungary commenced exchanges under the AEOI Standard in 2017.
In order to provide for Reporting Financial Institutions to collect and report the information to be exchanged, Hungary:
enacted Act CXC of 2015 on the publication of the Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information;
enacted Annexes 1 and 2, and Section V/B of the Act XXXVII of 2013 on the international administrative cooperation in tax matters, as amended in 2021;
made reference to Act LIII of 2017 Preventing and Combating Money Laundering and Terrorist Financing implementing the FATF Recommendations for the purposes of the identification of Controlling Persons under the AEOI Standard.
Under this framework Reporting Financial Institutions were required to commence the due diligence procedures in relation to New Accounts from 1 January 2016. With respect to Preexisting Accounts, Reporting Financial Institutions were required to complete the due diligence procedures on High Value Individual Accounts by 31 December 2016 and on Lower Value Individual Accounts and Entity Accounts by 31 December 2017.
Following the initial Global Forum peer review, Hungary amended its legislative framework to address issues identified, effective from 1 January 2022.
With respect to the exchange of information under the AEOI Standard, Hungary:
is a Party to the Convention on Mutual Administrative Assistance in Tax Matters and activated the associated CRS Multilateral Competent Authority Agreement in time for exchanges in 2017;
has in place European Directive 2011/16/EU on Administrative Cooperation in the Field of Taxation as amended by Directive 2014/107/EU; and
has in place European Union agreements with five European third countries.1
Table 1 sets out the number of Financial Institutions in Hungary that reported information on Financial Accounts in 2021 as defined in the AEOI Standard (essentially because they maintained Financial Accounts for Account Holders, or that were related to Controlling Persons, resident in a Reportable Jurisdiction). It also sets out the number of Financial Accounts that they reported in 2021. In this regard, it should be noted that Hungary requires the reporting of Financial Accounts based on a prescribed list of exchange partners and some accounts may be required to be reported more than once (e.g. jointly held accounts or accounts with multiple related Controlling Persons), which is reflected in the figures below. These figures provide key contextual information to the development and implementation of Hungary’s administrative compliance strategy, which is analysed in the subsequent sections of this report.
Table 2 sets out the number of exchange partners to which information was successfully sent by Hungary in the past few years (including where the necessary frameworks were in place containing an obligation on Reporting Financial Institutions to report information, but no relevant Reportable Accounts were identified). These figures provide key contextual information in relation to Hungary’s exchanges in practice, which is also analysed in subsequent sections of this report.
In order to provide for the effective implementation of the AEOI Standard, in Hungary:
the National Tax and Customs Administration (the tax authority) has the responsibility to ensure the effective implementation of the due diligence and reporting obligations by Reporting Financial Institutions and for exchanging the information with Hungary’s exchange partners;
technical solutions necessary to receive and validate the information reported by Reporting Financial Institutions were put in place by the National Tax and Customs Administration; and
the Common Transmission System (CTS), and in the European Union (EU) the Common Communication Network (CCN), are used for the exchange of the information, along with the associated file preparation and encryption requirements.
It should be noted that the review of Hungary’s legal frameworks implementing the AEOI Standard concluded with the determination that Hungary’s domestic legal framework is In Place But Needs Improvement and its international legal framework is In Place. This has been taken into account when reviewing the effectiveness of Hungary’s implementation of the AEOI Standard in practice.
Findings and conclusions on the legal frameworks
The detailed findings and conclusions on the AEOI legal frameworks for Hungary are below, organised per Core Requirement (CR) and sub-requirement (SR), as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Domestic legal framework: Jurisdictions should have a domestic legislative framework in place that requires all Reporting Financial Institutions to conduct the due diligence and reporting procedures in the CRS, and that provides for the effective implementation of the CRS as set out therein.
Determination: In Place But Needs Improvement
Hungary’s domestic legislative framework is in place and contains most of the key aspects of the CRS and its Commentary requiring Reporting Financial Institutions to conduct the due diligence and reporting procedures, but it needs improvement in relation to the scope of Financial Accounts required to be reported (SR 1.2). More specifically, Hungary’s legislative framework provides for four categories of jurisdiction-specific Excluded Accounts that do not meet the requirements.
SR 1.1 Jurisdictions should define the scope of Reporting Financial Institutions consistently with the CRS.
Hungary has defined the scope of Reporting Financial Institutions in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.2 Jurisdictions should define the scope of Financial Accounts and Reportable Accounts consistently with the CRS and incorporate the due diligence procedures to identify them.
Hungary has defined the scope of the Financial Accounts that are required to be reported in its domestic legislative framework and incorporated the due diligence procedures that must be applied to identify them in a manner that is largely consistent with the CRS and its Commentary. However, deficiencies have been identified. More specifically, Hungary’s domestic legislative framework provides for four jurisdiction-specific Excluded Accounts that are not in accordance with the requirements.
The definition of Financial Accounts, including the provision of Excluded Accounts, is material to the proper functioning of the AEOI Standard.
Hungary should amend its domestic legislative framework to remove four entries from its jurisdiction-specific list of Excluded Accounts as they do not meet the requirements. They are: i) Stability Saving Accounts; ii) Pension savings accounts; iii) Deposit accounts held by public notaries and advocates; and iv) Treasury Start Security Accounts (Start Accounts).
SR 1.3 Jurisdictions should incorporate the reporting requirements contained in Section I of the CRS into their domestic legislative framework.
Hungary has incorporated the reporting requirements in its domestic legislative framework in accordance with the CRS and its Commentary.
SR 1.4 Jurisdictions should have a legislative framework in place that allows for the enforcement of the requirements of the CRS in practice.
Hungary has a legislative framework in place to enforce the requirements in accordance with the CRS and its Commentary.
CR2 International legal framework: Jurisdictions should have exchange relationships in effect with all Interested Appropriate Partners as committed to and that provide for the exchange of information in accordance with the Model CAA.
Hungary’s international legal framework to exchange the information is in place, is consistent with the Model CAA and its Commentary and provides for exchange with all of Hungary’s Interested Appropriate Partners (i.e. all jurisdictions that are interested in receiving information from Hungary and that meet the required standard in relation to confidentiality and data safeguards) (SRs 2.1 – 2.3).
SR 2.1 Jurisdictions should have exchange agreements in effect with all Interested Appropriate Partners that permit the automatic exchange of CRS information.
Hungary has exchange agreements that permit the automatic exchange of CRS information in effect with all its Interested Appropriate Partners.
SR 2.2 Such an exchange agreement should be put in place without undue delay, following the receipt of an expression of interest from an Interested Appropriate Partner.
Hungary put in place its exchange agreements without undue delay.
SR 2.3 Jurisdictions should ensure that the exchange agreements in effect provide for the exchange of information in accordance with the requirements of the Model CAA.
Hungary’s exchange agreements provide for the exchange of information in accordance with the requirements of the Model CAA.
Assessed jurisdiction’s comments on the assessment of its legal frameworks
Hungary expresses its thanks and gratitude to the assessment team and to the Secretariat for the preparation of this report, for their availability and for the constructive collaboration throughout this review. Hungary takes due note of the findings of the report and the recommendations made and will examine them carefully, with the aim of further improving its legal framework in the area of automatic exchange of information.
Findings and conclusions in relation to effectiveness in practice
The detailed findings and conclusions in relation to effectiveness in practice of AEOI for Hungary are below, organised per Core Requirement (CR) and then per sub-requirement (SR) as extracted from the AEOI Terms of Reference (see Annex C).
CR1 Effectiveness in practice: Jurisdictions should ensure that in practice Reporting Financial Institutions correctly implement the due diligence and reporting procedures, which includes a requirement for jurisdictions to have in place an administrative framework to ensure the effective implementation of the CRS.
Hungary’s implementation of the AEOI Standard is on track with respect to ensuring that Reporting Financial Institutions are correctly conducting the due diligence and reporting procedures and are therefore reporting complete and accurate information. This includes ensuring effectiveness in a domestic context, such as through having an effective administrative compliance framework and related procedures (SR 1.5), and collaborating with exchange partners to ensure effectiveness (SR 1.6). Hungary is encouraged to continue its implementation process to ensure its ongoing effectiveness.
SR 1.5 Jurisdictions should ensure that in practice Reporting Financial Institutions identify the Financial Accounts they maintain, identify the Reportable Accounts among those Financial Accounts, as well as their Account Holders, and where relevant Controlling Persons, by correctly conducting the due diligence procedures and collect and report the required information with respect to each Reportable Account. This includes having in place:
an effective administrative compliance framework to ensure the effective implementation of, and compliance with, the CRS. This framework should:
be based on a strategy that facilitates compliance by Reporting Financial Institutions and which is informed by a risk assessment in respect of the effective implementation of the CRS that takes into account relevant information sources (including third party sources);
include procedures to ensure that Financial Institutions correctly apply the definitions of Reporting Financial Institutions and Non-Reporting Financial Institutions;
include procedures to periodically verify Reporting Financial Institutions’ compliance, conducted by authorities that have adequate powers with respect to the reviewed Reporting Financial Institutions, with procedures to access the records they maintain; and
effective procedures to ensure that Financial Institutions, persons or intermediaries do not circumvent the due diligence and reporting procedures;
effective enforcement mechanisms to address non-compliance by Reporting Financial Institutions;
strong measures to ensure that valid self-certifications are always obtained for New Accounts;
effective procedures to ensure that each, or each type of, jurisdiction-specific Non-Reporting Financial Institution and Excluded Account continue to present a low risk of being used to evade tax; and
effective procedures to follow up with a Reporting Financial Institution when undocumented accounts are reported in order to establish the reasons why such information is being reported.
In order to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, Hungary implemented most of the requirements in accordance with expectations. However, some issues were identified. The key findings were as follows:
Hungary implemented an overarching strategy to ensure compliance with the AEOI Standard developed after conducting a risk assessment that took into account a range of relevant information sources, such as in relation to the population of its regulated Financial Institutions, the information submitted by Reporting Financial Institutions as well as the feedback received from its exchange partners. Hungary’s compliance strategy facilitates compliance and incorporates a credible approach to enforcement. Hungary intends to keep its compliance strategy and risk assessment under review to ensure its effectiveness on an ongoing basis.
Hungary has worked effectively to understand its population of Financial Institutions. Hungary requires its Financial Institutions to register and requires nil reporting in cases where no Reportable Accounts are identified. It also publishes the list of Financial Institutions registered for the purposes of the AEOI Standard. In addition, Hungary has utilised various relevant information sources, such as the lists of regulated entities and the Foreign Financial Institution list for FATCA purposes to verify whether the list of registered Financial Institutions for the purposes of the AEOI Standard is complete. The information sources could be expanded in relation to the identification of non-regulated entities that are Financial Institutions for the purposes of the AEOI Standard. Hungary has taken action to ensure that Reporting Financial Institutions are classifying themselves correctly under its domestic rules and reporting information as required. Hungary intends to keep its understanding of its Financial Institution population up to date on a routine basis.
The institution responsible for implementing Hungary’s compliance strategy appears to have the necessary powers and resources to discharge its functions. With respect to resourcing, Hungary has assigned the equivalent of six full time staff to monitor and ensure compliance by Reporting Financial Institutions, which have access to IT systems and tools to conduct risk assessments. There is also an additional pool of auditors who provide assistance during onsite and in-depth audit activities. Overall, they appear to have effectively implemented an operational plan to verify compliance with the requirements, incorporating appropriate compliance activities.
It appears that Hungary effectively verifies compliance with and enforces the requirements including through the inspection of records of Reporting Financial Institutions. However, it appears that Hungary has not yet applied penalties or other sanctions for non-compliance. Hungary is ready to take effective action to address circumvention of the requirements if such circumvention is detected. Hungary appears to have procedures in place to ensure that self-certifications are obtained as required and to follow up on undocumented accounts.
Hungary will keep its jurisdiction-specific list Excluded Accounts under review to ensure they continue to pose a low risk of being used for tax evasion purposes. It does not have a jurisdiction-specific list of Non-Reporting Financial Institutions.
Table 3 provides a summary of the specific activities undertaken, or that are planned to be undertaken, in relation to each of the key parts of the framework described above.
With respect to the Financial Account information collected and sent by Hungary, the presence of the key data points of the Tax Identification Numbers and the level of undocumented accounts appeared to be in line with most other jurisdictions. However, while the collection and reporting of dates of birth is generally higher across jurisdictions, Hungary nevertheless reported a lower rate of collection of dates of birth when compared to other jurisdictions. This is a key data point for exchange partners to effectively utilise the information. Follow-up discussions confirmed that Hungary is aware of these issues and is taking steps to address them.
More generally, many of the exchange partners that received a significant number of records from Hungary indicated that they achieved a success rate when matching the information received from Hungary with their taxpayer database that was broadly equivalent to, or better than, what they usually achieve.
Based on these findings it was concluded that, overall, Hungary is meeting expectations in ensuring that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures, including by having in place the required administrative compliance framework and related procedures. It was also noted that there is room for improvement with respect to the identification of non-regulated entities that are Financial Institutions for the purposes of the AEOI Standard and routinely applying its enforcement measures. Hungary should therefore continue its implementation process accordingly, including by addressing the recommendations made.
Hungary should expand the information sources it uses to identify non-regulated entities that are Financial Institutions for the purposes of the AEOI Standard.
Hungary should routinely apply its enforcement activities where non-compliance is identified, including the application of penalties and sanctions as appropriate.
SR 1.6 Jurisdictions should collaborate on compliance and enforcement. This requires jurisdictions to:
use all appropriate measures available under the jurisdiction’s domestic law to address errors or non-compliance notified to the jurisdiction by an exchange partner; and
have in place effective procedures to notify an exchange partner of errors that may have led to incomplete or incorrect information reporting or non-compliance with the due diligence or reporting procedures by a Reporting Financial Institution in the jurisdiction of the exchange partner.
have in place effective procedures to notify an exchange partner of errors that may have led to incomplete or incorrect information reporting or non-compliance with the due diligence or reporting procedures by a Reporting Financial Institution in the jurisdiction of the exchange partner.
In order to collaborate on compliance and enforcement, it appears that Hungary implemented all of the requirements in relation to issues notified to them (i.e. under Section 4 of the MCAA or equivalent) in accordance with expectations. While no such notifications have yet been received, Hungary has the necessary systems and procedures to process them as required. Hungary also notifies its partners effectively of errors or suspected non-compliance it identifies when utilising the information received.
Based on these findings it was concluded that Hungary is fully meeting expectations in relation to collaborating with its exchange partners to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures. Hungary is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
CR2 Effectiveness in practice: Jurisdictions should exchange the information effectively in practice, in a timely manner, including by sorting, preparing, validating and transmitting it in accordance with the AEOI Standard.
Hungary implementation of the AEOI Standard is on track with respect to exchanging the information effectively in practice, including in relation to sorting, preparing and validating the information (SR 2.4), correctly transmitting the information in a timely manner (SRs 2.5 – 2.8) and providing corrections, amendments or additions to the information (SR 2.9). Hungary is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness.
SR 2.4 Jurisdictions should sort, prepare and validate the information in accordance with the CRS XML Schema and the associated requirements in the CRS XML Schema User Guide and the File Error and Correction-related validations in the Status Message User Guide (i.e. the 50000 and 80000 range).
Feedback from Hungary’s exchange partners did not raise any specific concerns with respect to their ability to process the information received from Hungary and therefore with respect to Hungary’s implementation of these requirements. More generally, four (or 5%) of Hungary’s exchange partners reported rejecting more than 25% of the files received, of which three reported rejecting more than 50% of files received, due to the technical requirements not being met. This is a relatively high amount when compared to other jurisdictions and it has increased over time. It was noted that while Hungary has addressed all the issues, the resolution of some of them is still ongoing.
Based on these findings it was concluded that, overall, Hungary is meeting expectations in relation to collaborating with its exchange partners to ensure that Reporting Financial Institutions correctly conduct the due diligence and reporting procedures. It was also noted that there is room for improvement with respect to addressing issues raised by its exchange partners. Hungary is therefore encouraged to continue its implementation process accordingly, including in relation to the area highlighted.
Hungary should continue to work with its exchange partners to address the issues raised.
SR 2.5 Jurisdictions should agree and use, with each exchange partner, transmission methods that meet appropriate minimum standards to ensure the confidentiality and integrity of the data throughout the transmission, including its encryption to a minimum secure standard.
In order to put in place an agreed transmission method that meets appropriate minimum standards in confidentiality, integrity of the data and encryption for use with each of its exchange partners, Hungary linked to the CTS and the CCN, which is used for exchanges within the European Union.
Based on these findings it was concluded that Hungary is fully meeting expectations in relation to agreeing and using appropriate transmission methods with each of its partners. Hungary is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.6 Jurisdictions should carry out all exchanges annually within nine months of the end of the calendar year to which the information relates.
Feedback from Hungary’s exchange partners did not raise any concerns with respect to timeliness of the exchanges by Hungary and therefore with respect to Hungary’s implementation of this requirement.
Based on these findings it was concluded that Hungary is fully meeting expectations in relation to exchanging the information in a timely manner. Hungary is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.7 Jurisdictions should send the information in accordance with the agreed transmission methods and encryption standards.
Feedback from Hungary’s exchange partners did not raise any concerns with respect to Hungary’s use of the agreed transmission methods and therefore with Hungary’s implementation of this requirement.
Based on these findings it was concluded that Hungary is fully meeting expectations in relation to sending the information in accordance with the agreed transmission methods and encryption standards. Hungary is encouraged to continue to ensure the ongoing effectiveness of its implementation.
SR 2.8 Jurisdictions should have the systems in place to receive information and, once it has been received, should send a status message to the sending jurisdictions in accordance with the CRS Status Message XML Schema and the related User Guide.
Three of Hungary’s exchange partners highlighted delays in the sending of status messages by Hungary, (representing 3% of its partners). It was noted that Hungary appears to be successfully addressing the issues to ensure that status messages are sent in accordance with the requirements.
Based on these findings it was concluded that, overall, Hungary is meeting expectations in relation to the receipt of the information. Hungary is encouraged to continue its implementation process accordingly, to ensure its ongoing effectiveness, including addressing the issues raised.
SR 2.9 Jurisdictions should respond to a notification from an exchange partner as referred to in Section 4 of the Model CAA (which may include Status Messages) in accordance with the timelines set out in the Commentary to Section 4 of the Model CAA. In all other cases, jurisdictions should send corrected, amended or additional information received from a Reporting Financial Institution as soon as possible after it has been received.
Hungary appears ready to respond to notifications and provide corrected, amended or additional information in a timely manner and no such concerns were raised by Hungary’s exchange partners and therefore with respect to Hungary’s implementation of these requirements.
Based on these findings it was concluded that Hungary appears to be meeting expectations in relation to responding to notifications from exchange partners and the sending of corrected, amended or additional information. Hungary is encouraged to continue to ensure the ongoing effectiveness of its implementation.
Assessed jurisdiction’s comments on the assessment of effectiveness in practice
Hungary thanks the assessment team for their work and guidance in producing this report and is pleased to note that its efforts for the implementation of the AEOI Standard have been recognised as being currently effective and on track. Hungary will continue to actively monitor its FI population as well as the exchanges in practice, to ensure effectiveness and improve its processes and quality of the information exchanged.
Note
← 1. Andorra, Liechtenstein, Monaco, San Marino and Switzerland.