Minister sheds some light on VAT fraud and government corruption in Hungary

Minister for National Economy Mihály Varga’s reply proves that even though the Hungarian National Tax and Customs Administration (NAV) knew that retail chain stores sell a high number of goods affected by VAT fraud, it did not take any steps to call to account the companies involved,” whistleblower and former NAV-employee András Horváth said at a press conference held by the Clean Air Action Group, the Association for the Protection of Interest of Enterprises and Nonprofit Ltd. on 13 December 2013. The wide media coverage of the press conference conveyed the main points accurately, but in order to facilitate better understanding some important details are highlighted below.

MP Gábor Vágó’s had posed a question to the Minister based on ’Forum for Reducing the VAT of Basic Food Products’ (operating from spring 2012 to April 2013) member Tamás Torba’s words which appeared in Hungarian daily Magyar Nemzet on 20 November 2013: ‘several members of the forum had in-depth information on whether the chain stores concerned sold goods affected by VAT fraud.’ Members of the forum had carried out ‘preliminary data collection and site visits as well as an overview of further sources, and found that in spring 2013 only three (!) chain stores were completely flawless, out of which two were foreign owned and one Hungarian owned. In six further chain stores the selling of goods involved in VAT fraud was and still is continuous.’ Concerning all these ‘the forum conducted negotiations with the tax authority’s management.’

In his reply the Minister confutes Tamás Torba’s claims, ‘tax office managers participating the negotiation said the accounts lacked concrete data which would have allowed for the initiation of inspection or criminal proceedings. Tamás Torba could not provide any details of this nature, he only gave general information on the chain stores involved in tax evasion.’

Who is right then? Did the forum representatives really name the chain stores involved in VAT fraud and the goods affected by this practice or, as the Minister claims, was it really a ‘general’ discussion of the issue?

The Minister’s reply has some further interesting points: ‘It had not been unknown to NAV that the goods and products which enter the country presumably through tax evasive practices, and through a number of traders, eventually reach some retail outlets where they can be purchased by final consumers.’ So the NAV is well acquainted with the problem, but have they done anything about it? We get the answer from the Minister: ‘... in August 2011 controls were executed to map the retail chains of several specified products (milk, cooking oil, granulated sugar, rice, LCD televisions, tablet PCs), and also to clear the market and collect data for further inspections at 7 large multinational chain stores. Based on the data collected about the stores 49 suppliers were selected for further control which basically aimed at tracking the chains of traders.’ Thus András Horváth’s claim is justified when he says that it wasn’t the chain stores, the main beneficiaries of VAT fraud which were inspected by the NAV, but the intermediary companies which usually exist only for several months and then disappear together with their tax debts.

Another section of the ministerial reply is also worth noticing: ‘... a further action was instituted which involved the largest retail chain stores above, and in 2012 the tax authority carried out a series of concentrated controls at a multinational retail chain, in the course of which, based on shipment inspection as part of an in-depth control at the company’s logistics centre and all of its stores, the tax authority initiated data collection inspections to substantiate subsequent controls.’

However, the Minister remains silent about what the tax office found during the inspections. However, one can deduce the reason for his silence from the following part of his reply: ‘... the involvement of the multinational retail chains in tax evasion is extremely difficult to prove as in the majority of cases they have regular suppliers and framework agreements, their direct suppliers’ relations with the tax authority are flawless, fraud is not done at this level but at lower levels of the chain. The NAV has made and will make its necessary assessments of tax deficit regarding the lower levels, this however still does not prove the retail chain’s involvement in tax fraud.’ Related to this here is a quote from an article which appeared in the Hungarian daily Magyar Nemzet on 27 September 2012: ‘... a number of domestic producers have told us about the astonishingly thorough examination the retail chains carry out on their companies before signing the supply agreement with them. This considered, it seems rather peculiar how easily the goods of these mafia-like networks get to the shelves of multinational chains; all the more so since these intermediary traders offer the food products mentioned above often at a price lower than that of the producer’s. If nothing else then at least these unreasonably low prices should raise suspicion in the retailers!’ However, as it turns out from the Minister’s letter, all these are not enough to raise the NAV’s suspicion about the complicity of the retail chains affected.

And we shall leave it to you Dear Reader to decide how to interpret that the multinational chain suppliers’ ‘relations with the tax authority are flawless’.


Budapest, 23 December 2013


András Lukács

(Clean Air Action Group)


  1. The Clean Air Action Group, founded in 1988, is a federation of Hungarian NGO’s working for environment protection, better public participation and transparency.
    Association for the Protection of the Interests of Enterprises (VÉSZ) is a nonprofit organisation which aims to defend those enterprises and social groups which suffer unjust disadvantages. Nonprofit Ltd. is an independent watchdog NGO to promote freedom of information and transparency in Hungary.