Group taxpayer status in corporate income tax: an important deadline is approaching

A group taxpayer status for corporate income tax purposes is a relatively new notion in the Hungarian tax system which potentially may be highly advantageous for groups of companies. It is well worth considering whether or not the individual circumstances make it possible for a group of companies to benefit from this tax regime. The advantages include the transfer pricing simplification (exemption), as well as the tax savings derived from the utilisation of negative tax bases.

The corporate income taxpayer companies whose financial year is aligned with the calendar year still have a few weeks to bring the decision whether to apply for a group taxpayer status. For the group taxpayer status to become effective as of 1 January 2020, the application should be submitted between 1 and 20 November 2020. (Those corporate income taxpayer companies whose financial year does not coincide with the calendar year, should apply between the 1st and the 20th day of the month preceding the last month of their tax year). A group taxpayer status always comes into effect as of the 1st day of the company’s tax year following the application date, the application deadline being the mandatory time limit.      

The tax savings may be realised if the group of companies has (a) loss-making member(s). Despite the fact that the tax bases of the profit-making and loss-making member companies may not be set off against each other, the group’s corporate income tax base may still be decreased by the amount of the occurred loss in the year when it arose, but latest within the 5 years following that year (subject to the 50% utilisation limit).   

The transfer pricing simplification includes the exemption from the transfer pricing documenting obligation for the group taxpayer members’ mutual transactions performed after the group taxpayer status came into effect, as well as from the obligation to adjust the corporate income tax base for any departures from the arm’s length price (though the latter advantage does not apply to other types of taxes).

Special care should be paid if the companies wishing to apply for a group taxpayer status utilise any corporate income tax benefits, or have a considerable amount of net finance cost implying the interest limitation rule, because in these circumstances the group taxpayer status may result in an increase of the total tax burden of the group of companies.     

Those Hungarian resident related companies may apply for a group corporate income taxpayer status which jointly comply with the following requirements:

• a direct or indirect majority control of at least 75 per cent of the voting rights exists between the group members, and
• the group members have the same balance sheet date, and
• all the group members prepare their financial reports - uniformly - either under the Hungarian GAAP, or under the IFRSs as adopted by the EU.

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The VGD Hungary’s tax experts provide assistance in interpreting the related complex tax regulations in the Clients’ individual circumstances, and in bringing a well-informed decision as to whether or not to opt for the group taxpayer status. If required, our tax experts support preparation of all necessary documentation, including a full-scope administration of the registration process.