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Hungary: Proposals to revise interest limitations, group taxation rules

Hungary: Proposals to revise interest limitations

A commission of Hungary’s parliament has submitted proposals to amend a draft law that was previously submitted to the parliament by the Ministry of Finance in late June 2019.


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Certain legislative proposals from the parliamentary commission are summarized below.

Corporate income tax

Interest limitations under group taxation: The interest limitation rules in connection with group taxation would be modified in a way that net borrowing costs and “earnings before interest, tax, depreciation and amortization” (EBITDA) for the tax year would be calculated for each group member, and those amounts would then be aggregated. Thus, the aggregate amount of net borrowing costs would be compared to 30% of the aggregated amount of EBITDA and to a cap of HUF 939,810,000 (whichever limit is higher). The calculated amount of non-deductible net borrowing costs would be allocated to the respective group members that accounted for net borrowing costs based on a ratio of the members' and the aggregated EBITDA. Based on the draft amendment, the HUF 939,810,000 cap would only be applicable for group members that recorded net borrowing costs in the given tax year.

Other rules under group taxation: The group would only be entitled to apply allowances in connection with grants for filmmaking or popular team sports, if at least one group member meets the related requirements. The declaration and submission would be performed by the group's representative.

If the tax liability of the group (or a member of the group) were to be satisfied on a day that is not the last day of the financial year, the date would be deemed to be the last day of the previous financial year.

Tax allowances: In contrast to the proposal in the draft law, the amendment proposed by the parliamentary commission provides that companies would be required to maintain the number of staff in relation to the “development tax allowance” (depending on the level of investment). The average number of staff (not including the staff of a foreign permanent establishment) in the four consecutive tax years following the claim of the tax allowance could not be less than the average staff number of the three tax years prior to the tax year of the investment.

Based on the amendment, the cap for the corporate income tax contribution would be modified to 80% (from 50%) of the monthly or quarterly tax allowance—this being in line with the repeal of a top-up requirement.

Exit tax: An amendment would clarify the rules for increasing the tax base under the exit tax regime (the scope would remain the same). Accordingly, the difference between the fair market value and the tax net value (or an amount equivalent to it) of the transferred assets or activities at the time of exit would increase the tax base (if there were no other tax base-increasing obligation on the same basis).

Advertisement tax: Rules regarding top-up obligation would be repealed from the tax year 2019. However, taxpayers would have the opportunity to perform a “top-up payment” on the 20th day of the last month of 2019 (when a declaration is filed). According to the amendment, taxpayers would have the opportunity to apply rules that have been in place so far in connection with grants made for filmmaking or popular team sports. For the period from 1 July 2019 to 31 December 2022—when the advertisement tax would be set at a flat rate of 0%—the amendment would suspend any tax base-increasing obligation in connection with non-business-related costs.

Local business tax

Under the proposed change, the frequency by which the tax authority would send (forward) local business tax returns received to the appropriate local municipality would be increased. Returns would be forwarded every day of the tax year (and not only on the 15th and the last day of each month) provided that the returns do not contain any errors or inconsistencies.

Also, concerning local business tax, the wording of the top-up requirements would be modified. In respect to local business tax, the year-end’s top-up return and payment liability would still apply for those taxpayers that are taxable persons for corporate income tax purposes and that are required to apply double-entry bookkeeping (annual net sales revenue for the tax year prior to the tax year in question exceed HUF 100 million).

Social security tax

The proposal would revise the rate of social security tax to be 17.5% as of 1 July 2019 (before July 2019, the applicable rate was 19.5%).

If the social security tax is payable by the individual, 85% of the income would be considered to be the individual’s personal income tax and the social security tax base as of 1 July 2019.

Read a July 2019 report prepared by the KPMG member firm in Hungary

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