Five Serious CIT Return Errors That May Only Come to Light During a NAV Tax Audit
Preparing the corporate income tax (CIT, or “Tao” in Hungarian) return may seem like a routine task for many businesses: the accounting closing has been completed, the current-year amounts of the tax base adjustment items applied in previous years are available, and the tax return software flags formal or arithmetic errors. In practice, however, the most serious CIT risks typically do not arise from the technical completion of the return.A much greater problem may occur if the company applies a tax base decreasing or increasing item incorrectly, documents its related-party transactions incompletely, or treats errors from previous years in the wrong tax year.
As a general rule, the deadline for filing the CIT return is the last day of the fifth month following the tax year. For calendar-year taxpayers, this deadline falls on 1 June in 2026. As the deadline approaches, the question is therefore not only whether the return will be prepared on time, but also whether it will be professionally defensible in a subsequent tax audit.
Below, we present five errors that the tax return software may not necessarily flag, but which may result in significant tax risk during a NAV tax audit.
1. Mechanical Use of Tax Loss Carryforwards
The use of tax loss carryforwards is one of the most frequently applied tax base decreasing items in CIT returns, but it is subject to a number of conditions that companies do not always examine in sufficient detail in practice.
Restrictions on the Use of Tax Loss Carryforwards
For many companies, the use of tax loss carryforwards appears as an automatic step in the CIT calculation. In most cases, companies simply record the negative tax bases from previous years and then use them against the positive tax base of the current year.
The problem is that the usability of tax loss carryforwards does not depend solely on whether the applicable time limit has expired since the loss was incurred, or whether any transitional rule may still be applied. It is also necessary to examine, among other things, whether there has been a change in ownership, transformation, merger, demerger, or whether the company applies the rules on group corporate taxation..
Tax Audit Risks Arising from Incorrect Records
A tax audit risk may arise if the company carries forward the negative tax base as a tax loss carryforward in a numerically correct manner, but does not track when the fifth tax year expires — which does not always coincide with the calendar year — or when another event occurs that restricts or may even prevent the use of the tax loss carryforward as a tax base decreasing item. In such cases, the return may be formally correct, but NAV may subsequently classify the tax base decrease as unjustified.
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2. Discrepancy Between Transfer Pricing Adjustment and Data Reporting
Transfer pricing data reporting related to transactions between associated enterprises is no longer merely an administrative obligation; it is now one of NAV’s key audit focus areas.
The Role of ATP Sheets in NAV’s Audit Practice
For transactions between associated enterprises, the CIT return is no longer only about tax base adjustments. Transfer pricing data reporting has become an independent audit focus area: based on the ATP sheets, NAV receives structured data on the taxpayer’s related-party transactions, the methods applied, transaction values and the related parties involved.
One of the greatest risks is when the data reported on the ATP sheets does not match what is presented in the local transfer pricing documentation.Such discrepancies may arise, for example, if the transaction value, related party, transaction description, transfer pricing method or profitability indicator reported on the ATP-01 sheet cannot be clearly reconciled with the local file.
Typical Errors in Transaction Aggregation and Method Selection
The overly general or insufficiently supported aggregation of related-party transactionsalso entails significant audit risk. Transaction grouping may be justified, but it can only be defended if the nature, economic substance, pricing logic and applied method of the aggregated transactions are genuinely comparable.
The incorrect or insufficiently justified method selectionmay be similarly problematic. It may also cause issues if the company applies a method based on net profit but does not select the appropriate profitability indicator. The indicator must be aligned with the functions performed, risks assumed and assets used by the parties in the given related-party transaction. It is also risky if the calculation of the indicator reported in the return cannot be clearly traced back to the documentation.In such cases, the data reporting itself may draw NAV’s attention to the transaction.
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3. Incorrect Release of Development Reserve
Creating a development reserve is a well-known CIT deferral opportunity, but in many cases the real risk does not arise in the year of creation, but years later, when the reserve is released.
Conditions for Releasing the Development Reserve
To release the development reserve without sanctions, a qualifying investment must be implemented. In practice, however, not every capitalised item automatically qualifies as an investment for which the development reserve may be released.The classification of work performed on a property, machine or technological system may differ depending on whether it is considered an investment, renovation or maintenance.
Risks Arising from Documentation Deficiencies
A typical error is when the company automatically assumes, based on the capitalisation shown on the fixed asset register, that the condition for releasing the development reserve has been met, but does not document the investment classification. During a subsequent audit, the tax authority may also examine the contracts, technical scope, invoices and performance documents.
Incorrect Interpretation of the Utilisation Deadline
It is also often overlooked that the development reserve must be used for a qualifying investment within four tax years following the tax year of the allocation, and not necessarily within four calendar years. In the event of a mid-year transformation or a change in the financial year, this period may appear shorter in practice, making it easier to miss the utilisation deadline.
A corporate tax return is not merely an administrative task, but also a matter of tax risk management. We help you close your tax year securely.
4. Incorrect Calculation or Incomplete Administration of Development Tax Credit
Claiming a development tax credit is a multi-year task. The risk may arise partly from the calculation of the tax credit amount and partly from the data reporting required in the CIT return.
Risks Related to the Calculation of the Tax Credit
Calculation errors may arise especially in the year when the company uses the full amount of the maximum tax credit available for the investment. In such cases, it is particularly important whether the eligible costs, present value and applicable aid intensity have been determined correctly.
Typical Errors in Determining Eligible Costs
Problems may arise, for example, if if the company includes costs incurred before the notification as eligible costs — such as the purchase of land, obtaining building permits or preparing a feasibility study — which may not qualify as the commencement of the investment and therefore may not prevent the use of the tax credit, but nevertheless cannot be included in the tax credit base. It is also risky if the present value of the actual investment costs exceeds the present value of the costs included in the notification, and the company claims the tax credit in the return based on the higher amount. In the case of large investment projects, the incorrect application of the special limits on aid intensity may be another source of error.
Incorrect Fulfilment of Data Reporting Obligations
Another common problem relates to administration. The data reporting related to the development tax credit must be properly completed on sheet 05-02 of the CIT return even if the company is not actually able to claim any tax credit in the given year,but has an investment qualifying for a development tax credit for which the credit amount has not yet been fully utilised. In such cases, it may be an error if the taxpayer does not complete the sheet, or if the data does not match previous notifications, records and tax returns.
An incorrect tax base adjustment can pose a serious risk. We help identify potential issues before the tax authority does.
5. Incorrect Treatment of Errors from Previous Years
When errors relating to previous years are identified, the risk lies not only in determining the correct accounting treatment, but also in deciding whether the previous CIT return must be self-revised.
Distinguishing Between Accounting and CIT Treatment
During the preparation of the CIT return, accounting errors relating to previous years are often identified: for example, a cost relating to a previous year that is only identified later, incorrect revenue accruals or subsequent invoice corrections. In such cases, it is not enough to determine in which year the error should be recorded for accounting purposes. It is also necessary to examine whether the previous CIT return must be self-revised, or whether the error can be treated in the year of discovery.
When Can the Error Be Treated Without Self-Revision?
As a general rule, if an error relating to a previous year appears as a cost or revenue decrease in the year of discovery, its effect may not automatically reduce the CIT base of the year of discovery. However, under certain conditions, a non-material error may be settled in the year of discovery without self-revision.
For example, if the company identifies in 2026 that it failed to recognise a HUF 3 million service fee in 2025, it must first examine whether the error qualifies as a non-material accounting error. If so, and if the 2025 tax base exceeded the amount of the error, the company may decide not to self-revise its 2025 CIT return, but to treat the error in the 2026 return.
Risk of Failing to Perform Self-Revision
However, if the error is material, or if the tax base of the previous year did not exceed the amount of the error, the simplifying rule cannot be applied. In such cases, the previous year’s CIT return must be self-revised if the error affects the tax base or tax liability of that previous year. It may present a risk if the company automatically treats the identified error through the current year’s profit or loss and does not examine whether self-revision is required.
Why Is the Tax Return Software Check Not Enough?
The CIT return software can identify many formal and arithmetic errors, but it cannot assess whether the tax loss carryforward claimed is actually usable, whether the data reporting for a related-party transaction is consistent with the transfer pricing documentation, or whether the development tax credit claimed by the company exceeds the maximum amount available for the investment.
These questions are decided not when the return is technically completed, but when the calculation and background documentation are prepared. Therefore, before filing the CIT return, it is worth reviewing not only the calculations but also the underlying information and documentation.
Proper preparation of the CIT return does not merely mean calculating the amount of tax. The objective is for the return to be defensible in a subsequent tax audit,and for the company to have the documents that support the tax base adjustment items and tax credits applied.
Legal disclaimer:
This article is for information purposes only and does not constitute tax advice. Before making a specific decision, please request the personalised opinion of our expert.
Author: Vizer József,
Partner and Lead Consultant, ICT Business Advisory Zrt.
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