Police investigation into NAV finds evidence of criminal wrongdoing in only one case

December 17, 2016

Three years after former national tax inspector András Horváth (pictured) accused the National Tax and Customs Administration (NAV) of systematically turning a blind eye to tax fraud perpetrated by some of Hungary’s largest companies, both Hungarian and foreign owned, police have concluded that, but for one exception, no crimes were committed, reports 444.hu.

In November 2013 Horváth, a technical coordinator, publicly accused NAV of both prematurely shutting down tax audits and failing to assess tax arrears and related fines and penalties, particularly in the case of companies illegally claiming back value added tax (VAT).

He accused the tax authority of systematically interfering with the work of its inspectors finding evidence of tax fraud.  This allegedly often involved transferring them to other investigations or closing down the inspections altogether.

Horváth quit his job and filed a complaint, alleging abuse of official power.  He claimed that in the case of the largest Hungarian and multinational companies – so-called exceptional taxpayers – NAV was more than willing to turn a blind eye to cases involving tax fraud.

He said this practice deprived the central budget of hundreds of billions of forints in tax revenues every year.

The National Investigation Office’s Department for Exceptional Cases at the Head Office Against Corruption and Economic Crimes found that with only once exception the individuals appearing in Horváth’s complaint had not committed crimes

For the most part, his complaint contained largely general accusations about the NAV system for conducting audits.  He said the choice and timing of audits was handled in such a way that individuals holding leading positions could influence the direction of the investigation conducted by their subordinates.  The police did not deal with systemic problems of this kind, and failed to investigate matters where Horváth did not give the name of concrete individuals and companies.

Among the cases specifically mentioned by him, General Electric (GE) was one of the largest.  By the beginning of 2011 the Special Cases Directorate’s (KÜIG) so-called Centralized Inspection Specialization Unit (KESZ) was completing its investigation of GE, where it was generally agreed that the company had failed to pay taxes totaling HUF 42 billion, or roughly USD 200 million.  The tax inspectors prepared a criminal complaint as well.  However, the case was awaiting legal input from abroad and for this reason could not be closed.  Prior to the information’s arrival, the company’s leaders held meetings with tax authority representatives, but could not agree.  In the end – and former KÜIG director Deme Zsolt Hegedűs testified to this – a GE representative stood up at the end of one of the meetings and announced that “he would solve the problem” with Hegedűs’ boss,  Katalin Somos,

Following that, Hegedűs and his colleagues were summoned to the Central Authority where Somos’ deputy, Melinda Rákosa, told them to “forget” the memorandum containing the results of the investigation on the grounds that she disagreed with the conclusions.  In the end, the matter was closed without any tax arrears, fines or penalties being assessed, and the criminal report previously prepared was never submitted to authorities.

The police concluded that no abuse of office took place because these were questions of a professional nature over which debate took place within the tax authority, reports 444.hu.  The daily online writes that over the course of the investigation police simply asked each and every NAV official responsible for shutting down investigations their reasons for doing so, to which everyone responded that there had merely been a difference of opinion.

“In other words, they asked those directly implicated whether they were guilty and simply accepted from them the negative answer, without investigating the affair itself or whether GE had, in fact, underpaid its taxes,” writes 444.hu, adding that it was clear from the written findings of fact that even the witnesses agree that what Horváth said from the beginning was what had essentially happened: after meeting with representatives of the company in question, the heads of the tax authority gave various reasons for stopping the tax inspectors who had uncovered tax fraud.

In a similar manner tax audits of Bielesen Kft., Gránit Agriculture Kft., Syngnus Kft. and Glencore Grain Hungary Kft. were shut down, reports 444.hu.  In these cases, the police did not find a criminal act or evidence of abuse of power.  For example, they did not find convincing Horváth’s determination that the Bielesen audit was taken away from a young, talented inspector because the Foreign Office urged NAV to finish the inspection.

The Glencore Hungary case is especially worthy of note, according to 444.hu.  Horváth suspected the company of fraudulently claiming back VAT after commodities had been shipped abroad, at least on paper.  Despite Horváth reporting to his superiors the fact that the company was illegally recalling VAT at the end of each month, the practice continued.

In this case, police found that the company had inadvertently been let off the hook due to a clerk mistakenly entering the wrong number on a statistical form.  Instead of entering a number indicating that a punishment was to be assessed, he used one which meant that no action was to be taken.

According to the police, there can be no question that any of this took place deliberately, since the auditor in question admitted that he had accidentally used a code providing for the very opposite of what he intended.  “A mistakenly filled in statistical form by itself is not suitable to determine criminal responsibility, and can be considered an administrative mistake having no clear objective,” reads the police decision officially closing the investigation.

Nowhere does the document indicated that Horváth had not spoken the truth.  In fact, it indirectly strengthened everything he said, only that the event in question did not constitute crimes.  Everything was closed in a way that indicated completely normal procedures or expert disagreements were to blame, summarizes 444.hu.

Only one indictment took place, and that was in the case of Delta Feed Kft., where an Andra F. was indicted for abuse of office.  However, the matter was not detailed as in the case of the others where the investigation was ended.

András Horváth is a perfect example of what fate awaits those who report such matters to authorities.