Hungarian Government Submits 2014 Tax Amendments To Parliament
07 November 2013
Posted by: Author: Ernst & Young
Author: Ernst & Young
On 18 October 2013, the Hungarian Government submitted its proposal
on amendments to tax and contribution rules with respect to 2014 to the
Parliament. Final votes are expected for the second half of November.
Alert summarizes the most key corporate tax proposals. However, these
proposals may change during the course of the Parliamentary debate.
Proposed amendments to the corporate income tax base
will have the opportunity to reduce their pre-tax profit by the direct
costs of research and development (R&D) activities carried out by
their related enterprises (within the scope of their own activities)
subject to the Act on corporate income tax (CIT). This is conditional on
the R&D activity carried out by the related enterprise
corresponding to the entrepreneurial (revenue generating) activities of
the taxpayer and its related enterprise. Also, the taxpayer must hold
the appropriate declaration issued by its related enterprise as follows.
The declaration must include the direct costs of the R&D activity
carried out by the related enterprise within the scope of its own
activities in the tax year in question, and the amount that the taxpayer
can decrease from its pre-tax profit in this regard.
on reported participation will also change. The 30% rate that provides
the entitlement to report participation will decrease to 10% and the
60-day deadline by which the acquisition of participation must be
reported will be increased to 75 days.
and medium-sized enterprises will also be able to decrease their
corporate income tax bases by up to HUF 30 million (approximately
US$137,000) in relation to purchasing the utilization rights of software
- For companies that transfer
their registered seat to Hungary, taxpayers that qualify as tax
residents as a result of transferring their place of management will
have the opportunity to determine depreciation based on the market value
of assets effective on the date on which resident status is obtained;
instead of the acquisition value of the assets (which is the general
- Self-revisions will no longer result
in tax base adjustments (either decreases or increases). In this
context, the Proposal includes a definition for non-material mistakes,
which differs from the Act on Accounting. Based on the definition
detailed in the Proposal, for micro-enterprises that prepare simplified
annual financial statements, the upper limit of the non-material mistake
will be 2% of the balance sheet total. Nonmaterial mistakes have to be
reported in tax returns submitted for the tax year in which the mistake
in question was discovered. Therefore, the corporate income tax
liabilities of previous years do not have to be amended by
- If restaurant services used
for promotional purposes are paid for with debit or credit cards, costs
and expenses accounted for in this respect may also qualify as eligible
costs for corporate income tax purposes even if the payer holds only
the receipt issued on the transaction, provided that the services are
used for business entertainment purposes specified in the Act on
Personal Income Tax.
- Foreign persons that sell Hungarian real properties will have permanent establishments for corporate income tax purposes.
- The actual economic presence of controlled foreign companies will not be able to be verified by investment activities.
The corporate income tax base of foundations (including public foundations), associations and public bodies
(including public foundations), associations and public bodies will not
be able to apply the beneficial provisions on establishing their
corporate income tax base in the tax year in which they primarily
qualify as economic-entrepreneurial organizations based on the Act
governing the operation of foundations.
If a non-profit
business association primarily qualifies as an economic-entrepreneurial
organization, the provisions of the Act on CIT relating to the
termination of non-profit legal status will have to be applied.
Corporate income tax allowance available to small- and medium-sized enterprises
on loan agreements relating to tangible asset investments concluded
after 31 December 2013, small- and medium-sized enterprises will be able
to utilize 60% (rather than 40%) of the interest paid in the tax year
in question as a corporate income tax allowance. The tax allowance cap
remains unchanged at HUF 6,000,000 (approximately US$28,000).
Employee securities plans
securities plans will no longer have to be registered with the
Hungarian Tax Authority. It will become easier to start such programs,
since the condition that at least 10% of a company’s employees must
participate will be cancelled. Plans will have to be published in
writing and these must be available to every employee. Employers will
still be able to provide employees with securities free of tax up to the
annual amount of HUF 1 million (approximately US$4,500) and subject to a
three-year vesting period.
The amendment will come into force
on the 30th day following the date on which the Act is promulgated.
Therefore, it is expected that employee securities plans can also be
initiated under the new rules at the end of 2013. Pursuant to the
transitional rule, it will be possible to involve employees who were not
reported to the tax authority when registering the plan to recognized
employee securities plans initiated before 2014.
The tax base of controlled real estate investment companies
amendment of the Act on controlled real estate investment companies is
aimed at facilitating the establishment of such companies. Among other
things, controlled real estate investment companies will have the
opportunity to own more than 10% of the shares of business entities
engaged in organizing building projects as their principal activity. In
this respect, profits realized on the alienation of shares exceeding the
10% shareholding in business entities engaged in organizing building
projects as their main activity are not exempt from corporate income tax
Sectoral levy on financial enterprises
enterprises exclusively engaged in group financing will not qualify as
financial enterprises and thus will not be subject to the sectoral levy.
Credit institution contribution
on the proposed amendment of the Act on credit institutions and
financial enterprises, if a credit institution transfers its general
risk provisions or a part of it to its retained earnings, it will become
subject to a onetime tax liability of 19% of the amount accounted for
as the decrease of general risk provisions (on the balance sheet date of
31 December 2013).
In 2013, credit institutions are subject to
a onetime contribution liability of 19% on amounts accounted for as the
decrease of general risk provisions in relation to converting the stock
of risk provisions specified in the legislation to capital items. The
contribution must be reported and settled by 10 March 2014.
Sectoral levy on energy suppliers (Robin Hood tax)
As of 2014, companies subject to the sectoral levy on energy suppliers (Robin Hood tax) will have to pay estimated tax payments.
The procedure and frequency of tax advance payments will correspond to the rule specified in the CIT Act.
will be various amendments to the green tax regulations. For example, a
new provision will specify when new green taxable products are created
during the manufacture and processing of certain products.
rules on reusable packaging will include a new opportunity. Entities
that rent out reusable packaging within a rental system will not be
subject to any green tax liabilities on renting out reusable packaging.
In order to qualify for this opportunity the entities in question must
operate a closed computer system through which product history can be
tracked. If an entity intends to apply the rental system, the
environmental protection authority will provide the license upon
Introducing the legal institution of green tax warehouses will lift a significant burden.
taxable products will be able to be stored or manufactured without any
green tax being paid. Green tax liabilities will only be triggered upon
the final use or when products are released for domestic circulation.
Binding tax ruling requests
the Proposal, requesting a binding tax ruling will be subject to a duty
of HUF 5 million (approximately US$23,000) (or HUF 8 million –
US$36,500 - if the ruling is urgent). For permanent binding tax rulings,
the duty will be HUF 8 million. In urgent cases permanent rulings will
have a duty of HUF 11 million (approximately US$50,000), which is a
decrease on the current duty.
The authorities will introduce
preliminary consultation with respect to binding tax rulings. This will
provide taxpayers with legally controlled opportunities to have a
consultation before initiating the expensive binding tax ruling request
procedure. Every consultation will be subject to a duty of HUF 100,000
In the future, binding tax ruling requests will be
one-level procedures. It will be possible to request that resolutions
made in the course of these procedures be revised by the court.
binding tax rulings will only be able to establish tax liabilities (or
the lack of them) relating to the taxpayer that submitted the request.
The administration deadline of binding tax ruling requests will be extended by 15 days (from 60 to 75 days).
Tax audit methods
the course of tax audits and data collection procedures, the tax
authority will be entitled to become familiar with the software and IT
systems (and their contents) applied by taxpayers for bookkeeping and
documentation processing purposes.
taxpayers failed to pay at least 90% of the expected tax liabilities
when fulfilling their top-up obligation due to foreign exchange
differences for reasons out of their control, they will not become
liable to a 20% default penalty in this respect.
Taxable persons not established in Hungary
the Proposal, taxable persons that are not established or that are not
obliged to establish themselves in Hungary based on the Act on VAT will
be exempted from the obligation to register as taxpayers in Hungary.
This exemption only applies provided either that the activities that
these taxpayers carry out in Hungary only cover selling products that
are subject to tax warehouse procedures in such a way that the products
in question remain subject to the tax warehouse procedure, or that the
customs authority declares that the products left the Community.
Books kept in foreign currencies; conversion rule
amendment of accounting rules will provide the unconditional
opportunity to keep books and prepare financial statements in USD.
the future, the official foreign exchange rate published by the
European Central Bank will also be applicable for accounting purposes
when converting certain items incurred in foreign currencies into HUF.
This article first appeared in ey.com.