HUNGARIAN TAX LAW AMENDMENTS SUMMER 2023

 

On 6 June 2023, the Government submitted its bill (T/4243), which includes amendments to the tax laws. In this newsletter, we briefly outline the expected changes as they currently stand.

Personal income tax

The bill introduces new rules on the tax liability of fiduciary trust (“bizalmi vagyonkezelés” in Hungarian) and private foundation assets.

Fiduciary trusts are an increasingly common form of tax planning, which have so far had the great advantage that the revaluation of the assets placed in trust by the individual (the trust order of assets at market value) could be done tax-free. The law has treated in the same way the transfer of property by the founder and the private individual joining the private foundation. The bill would remove this tax exemption, making the revaluation margin taxable on the private individual's side, while allowing for the deferral of tax liability. The new rule will apply to transfers of assets made after the law enters into force, so that in the short time remaining before the law enters into force, transfers of assets can still be made under the favourable rules.

As a consequence of the change, it will not be possible in the future, for example, to permanently avoid the tax on the revaluation between the acquisition value and the market value in the case of sales of companies or shares by using a trust alone.

The bill also specifies the acquisition value of assets (e.g. car) transferred to beneficiaries from a trust or private foundation for non-cash purposes, in order to avoid a tax advantage on the subsequent sale of these assets by the individual.

The bill would, unchanged, incorporate into law the following measures previously promulgated in a government emergency decree, which we have previously reported on (https://vgd.hu/en/news/professional-publications-newsletters/changes-to-employee-benefits-and-allowances-from-2023):

• A benefit for mothers under 30 years of age;
• an additional family allowance for families with a permanently sick or seriously disabled child;
• changes to the tax rules in connection with the abolition of the Széchenyi Card sub-accounts;
• an increase in the rate of travel expenses that can be disregarded when calculating income from 15 HUF/km to 30 HUF/km (previously reported here:https://vgd.hu/en/news/professional-publications-newsletters/the-statutory-amount-of-the-commuting-reimbursement-doubled)

 

Social contribution tax

Under the bill, the social contribution tax credit will be available not only for the employment of disabled people with a complex qualification, but also if the employee is in receipt of disability allowance or personal allowance for the blind, i.e., the scope of the disability tax credit would be extended.

The bill also extends the obligation to pay social tax to non-monetary benefits granted to guest workers coming to Hungary from non-EU countries. It is proposed that in the future, these persons will not be eligible for the benefit for labour market entrants.

 

Simplified employment

The bill would also bring into law, unchanged, the measures previously promulgated in the emergency government decree, under which the public charges payable for employment in simplified employment and the basis for calculating the related pension benefits would be based on the minimum wage. The provision determines the public charge payable for simplified employment as a percentage of the minimum wage applicable on the first day of the month, instead of the previous fixed daily amount.

 

Simplified contribution (EKHO)

The measure on simplified contribution (EKHI) is also made statutory, according to which the payer is not liable to pay simplified contributions in certain legal relationships.

 

Corporate income tax

The bill would remove the time limit on the use of carry-forward losses, so that unused carry-forward losses incurred up to the last day of the tax year starting in 2014 can be used after 2030, as required on the last day of the 2014 tax year.

Without substantive change, the content of the tax base adjustments for the transfer of assets to a transferee has been clarified: in line with the Accounting Law, the amount of the tax base reduction/increase that can be applied to the transferor is determined by the gain on the transfer of the business instead of the amount of the gain recognized in excess of the carrying amount of the assets transferred.

The draft would repeal the requirement to treat advertising costs in excess of HUF 30 million as expenses not recognized in the interest of the business under certain conditions.

In addition, the rules for companies owning immovable property converted from agricultural land are tightened.

 

Income tax on energy suppliers

The legislation transposes certain emergency provisions previously regulated by government decree into law, so that in the future traders engaged in the wholesale supply of petroleum products and traders selling petroleum products purchased from abroad in Hungary will be permanently subject to the income tax of energy suppliers and will also be subject to special administrative obligations.

Local business tax

The bill extends the advance payment rule for those entitled to opt for the simplified business tax base to all persons moving to this tax base.

It also introduces new conditions for the establishment of a permanent establishment.

In the territory of a municipality where temporary agency workers work for a total of at least 1 440 hours during the tax year, the temporary agency will have a permanent establishment.

For air passenger transport operators, a local business tax establishment is created at the airport from which their flights depart. In their case, their net turnover includes the value of the air passenger transport service provided on their flights from Hungary and the consideration for the service provided in conjunction with the flight.

The proposal also includes changes for taxpayers applying individual IFRS.

 

Innovation contribution

The proposal provides for the enactment of a correct legal interpretation of the innovation tax base, bringing the determination of the innovation tax base in line with the local business tax base from a transfer pricing perspective. The arm's length price to be taken into account for the contribution base will in future be determined according to the transfer pricing methodology prescribed in corporate taxation, including the obligation to adjust for the median.

It is proposed that a small business taxpayer, if liable to pay an innovation tax, may also determine its innovation tax base on the basis of its local business tax base determined in a simplified way. The election is made for a tax year and must be notified to the tax authorities.

 

VAT

In order to further whiten the economy, the details of the eNyugta concept will be set out in a ministerial decree, for which the necessary enabling provisions and basic definitions are now being defined.

For the time being, it appears that real-time data will also be collected in a separate receipt repository - operated by the Hungarian Tax Authority - which is intended to allow customers to access the data uploaded and stored there via an application.

In the context of a harmonization amendment, taxable persons not established in the country but established in a Member State of the European Union will be able to recover input VAT charged on the purchase of domestic real estate – assessed after 31 December 2021 - under the special VAT refund procedure.

It is envisaged that in the future, the withdrawal from the group tax status and the reorganization of the state's tasks should be treated as succession.

Special rules on the compulsory redemption of roll-overs would be established on the basis of the draft.

 

Excise duty, customs duty

The bill would introduce a change by allowing tax warehouses to take back excise goods released for free circulation for commercial purposes, with the proviso that they would have to be stored and registered separately from excise goods under duty suspension. The excise goods would have to be dispatched under cover of a consignment note which clearly distinguishes them from the excise goods giving rise to the chargeability of the tax. No excise security would have to be provided in the case of retail activities with a tax warehousing authorization, but stock changes would have to be included in the daily electronic reporting.

 

It would be possible to adapt the KN code classification to changing circumstances, but if it were withdrawn, a new KN code classification could be issued in response to changed conditions.

If the draft is adopted, taxpayers will have to face a higher rate of taxation on fuel from 1 January 2024 in order to comply with the EU minimum levels of taxation.

The rate of excise duty laid down in the government decree on extra profit tax would be raised to the level set by law.

The draft clarifies the cases that do not constitute a customs shortage and considers the cancellation of an export declaration prior to the release of the goods as a legitimate behavior of the customer and exempts it from customs administrative penalties.

 

Accounting

The bill would supplement the rules on reporting corporate tax information under the Accounting Act, which currently requires the report and, where applicable, a declaration that the report is incomplete, to be published on the entrepreneur's website. In order to comply with EU legislation, this requirement would be supplemented by the addition that the report and the declaration must remain available on the relevant website for at least 5 consecutive years.

The draft also includes an addition to the transformation rules, according to which Act CXXIV of 2021 on cross-border transformations, mergers, divisions and other legislative amendments to the Act on cross-border transformations, mergers, divisions and other legislative amendments of capital companies for harmonization purposes contains several special provisions - other than those applicable to purely domestic transformations, mergers, divisions - which must be taken into account when performing accounting tasks in cross-border transformations, mergers, divisions.

 

Tax procedure rules

Under the bill, a conditional tax assessment could in future also be initiated for type contracts. The legislation would also set the fee for the initiation of a conditional tax assessment (HUF 10 million for a type contract, HUF 8 million for other contracts, and HUF 12 million for an application under the emergency procedure).

As regards the annual vehicle tax, the proposal reduces both the administrative burden for taxpayers and the tax administration by modifying the payment deadline (15 April is the new deadline), so that the payment obligation is imposed once instead of twice. The bill would allow for a five-monthly instalment payment of the annual vehicle tax liability for the current year, upon request by the individual taxpayer, if the request is submitted by 30 June of the current year.

Under the draft law, the tax authority would extend the automatic instalment facility to legal persons, and upon request, the tax authority would be able to authorize one instalment payment of up to six months per year, free of surcharges, for tax debts of up to HUF 1 million registered by the taxpayer.

In order to reduce the possibility of tax evasion and to improve the economy, the draft would reduce the period for monitoring the failure to file a return from three hundred and sixty-five days to one hundred and eighty days. It is proposed that in the future the tax authority will cancel the tax number if the taxpayer fails to comply with the obligation to submit a summary VAT return to the state tax and customs authority or to submit a monthly tax and contribution return within one hundred and eighty days of the statutory deadline, despite a request from the state tax and customs authority.

The draft would also re-regulate the requirement to submit a change notification, so that currently there is no guarantee that a notice to submit a change notification will be sent out if the taxpayer fails to do so, and the tax authority would have to impose a penalty immediately, but under the draft the tax authority would also require the taxpayer to submit a change notification if the taxpayer has failed to comply with the change notification obligation or has not complied with it properly.

Under the draft, a taxpayer would remain in the public debt exemption database if the debt is less than HUF 30,000, which could be of particular help to those concerned in the case of certificates relating to family allowances and the receipt of various benefits.

According to the draft, the criteria for determining a reliable taxpayer would be clarified, and the state tax and customs authority would not take into account enforcement requests that do not exceed HUF 100,000 in the qualification process. The amendment also clarifies the situation where individual members of a VAT or CIT group or the group itself cannot be granted a reliable taxpayer classification, even though all members would have been entitled to do so without the group being formed. The proposal also eliminates anomalies for taxpayers carrying out holding activities.

The rules on new proceedings are also changed, so that new proceedings can only be opened in the light of the outcome of a court ruling on a request for review (reconsideration).

 

Airline contributions, additional extra profit taxes

Under the bill, the airline tax would remain unchanged in 2024, the contribution introduced as an extra profit tax would in future operate as a green tax in line with EU legislation and would therefore be transferred from the emergency regulation to law. We also wrote about the airline levy in our previous newsletter:https://vgd.hu/en/news/professional-publications-newsletters/changes-in-hungarian-extra-profit-taxes-in-effect-from-1-march-2023

We reported on the changes affecting other extra profit taxes in our previous newsletter:https://vgd.hu/en/news/professional-publications-newsletters/changes-in-the-extra-profit-tax-rules

 

Transaction tax

From 1 August 2023, all persons providing payment services, lending and borrowing money, currency exchange and currency exchange intermediation activities, and having a foreign seat or branch, are expected to be subject to the regulation if the customer using the service is resident in Hungary. This amendment extends the scope of foreign persons who will potentially be subject to the transaction tax/securities transaction tax.

 

9 Jun, 2023

***

Should you have any questions regarding this newsletter, the tax experts of VGD Hungary will be pleased to assist you.

This newsletter provides general information and does not constitute advice.