TAX LAW CHANGES 2021
2.
Corporate income tax
Controlled foreign company (CFC)
From 1 January 2021, the concept of a CFC will be extended to mean that the exemptions currently in force for companies with certain indicators below certain thresholds will not apply to foreign persons, foreign permanent establishments that are tax residents in the countries qualified as non-cooperating states by the regulation still to be issued by the Ministry of Finance.
Further, from the day following the promulgation of the law, the part of the dividends and capital gains derived from the so-called genuine transactions performed by CFCs will become tax-exempt in the form of a tax base decreasing item. For the part derived from the non-genuine transactions, the tax base decrease continues to be capped at the amount of the relevant tax base increase item.
Permanent establishments
From 1 January 2021, the permanent establishment rules will be tightened in two respects. On the one hand, the provision of services by an employee for more than 183 days - even without a physical permanent establishment – triggers a permanent establishment in Hungary for a foreign taxpayer, in addition, the related projects should be taken into account on an aggregate basis. On the other hand, in cases where a particular double taxation convention allocates a permanent establishment to Hungary in certain circumstances, but no permanent establishment would arise under the Hungarian Corporate Income Tax Act, permanent establishment should be allocated to Hungary under the double taxation convention.
Refinements of certain tax base adjustment items
As of 1 January 2021, no Form yearTAOASZ should be submitted to the tax authority for the bad debts with the related party debtors, if the taxpayer wishes to decrease its tax base for such amounts. Instead, records should be kept on the real economic reasons underlying the transaction with the related company concerned.
From the day following the promulgation of the law, in the case of group corporate taxpayers, the tax base increase item related to debt financing should be taken into account in the proportion of the net financing costs (instead of EBITDA). For the tax year beginning in 2020, it can be applied at the option of the taxpayer.
Support for spectator team sports will become available also for the full amount of the costs directly related to the protection against the coronavirus, as well as the security measures required by the sports federation. This aid does not constitute state aid and can already be applied for the tax year starting in 2020.
The tax benefit for investments serving energy efficiency purposes will not be available if the object of the investment is a passenger car or an electric passenger car. Exceptions are made for passenger cars with large load compartment as defined by law. (Effective for investments made after the 31st day after the promulgation of the Act).
From 1 January 2021, the tax base reduction item eligible for the development reserve can be used up to the amount of the pre-tax profit: the HUF 10 billion limit will be abolished.
As a result of the amendment to the Accounting Act, the dividends payable, but not distributed and waived by the owners, should be recognized directly as an increase in retained earnings from 1 January 2021. Accordingly, the provisions which allowed a relevant corporate income tax exemption for both the dividend-payer company and its corporate owners are repealed.
Companies with foreign branches may, under the conditions laid down by law, reduce their pre-tax profit by the difference between the price applied and the arm’s length price even without a statement issued by the branch as a confirmation that the branch has increased its tax base accordingly (applicable for the transactions where the services were rendered at prices higher than the arm’s length prices).
