With Hungarian businesses liable for the minimum tax (minimumadó) for the first time this year, they are advised to think twice about the items they include on their tax returns, Adózóna reports.

Under the minimum tax rule, which came into effect on July 1, 2007, if the pre-tax profit or tax base of a company or sole proprietor is less than 2% of their adjusted gross income, they can opt either to pay taxes on 2% anyway or fill out a statement listing their revenues and costs according to a given set of questions.

These declaration forms are then evaluated by the national tax office (APEH) to filter out potential tax evaders who the authorities may have reason to believe artificially boost their expenditure figures in order to minimize or void their tax obligations altogether.

Official figures show that nearly 40% of the 403,000 sole proprietorships doing business in Hungary in 2006 were either loss-making, at break-even, or had earnings of less than 2% of their turnover. The rate was an even higher 41% for partnerships.

Companies often declare themselves loss-making for years without winding up, which APEH says is unrealistic. Since the minimum tax was introduced last July, some 45,000 businesses have been wound up. Meanwhile, only 52 companies have reportedly tried to sidestep the minimum tax by filling out the required statements.

APEH said it will closely watch dubious items typically used by companies to reduce their tax bill, such as entertainment expenses. In addition to the relevant tax year, businesses have to provide expense and income figures for the previous two years. Since the tax was introduced at mid-year, revenues will be split and taxed accordingly.

Companies singled out by APEH as suspicious will be notified within 30 days about further inspections, scheduled to take place within the following 12 month. These inspections do not qualify as subsequent tax payment verification and thus do not close the company's tax year.

Businesses which don't receive a notification from APEH within 30 days after filing their tax returns may still face inspections at later dates on other accounts, but companies can chose to file amended returns.

APEH has said taxpayers who submit a declaration bear the burden of proof and have to "convince" the tax authority of the validity of the moot items.

APEH has the authority to use estimations in certain cases as conclusive evidence.