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Hungary company car tax

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Hungary

The Hungarian Parliament adopted some modifications to certain tax laws.

Company car tax. The amendments refer to persons and companies permanently leasing an automobile subject to company car tax in relation to contracts effective from last July. In this way those permanently leasing an automobile would also be entitled to deduct the amount of company car tax from the amount of motor vehicle tax. Permanent lease status includes rental for an indefinite period or for more than a year, provided that the lessee is registered as the keeper of the car.

Value added tax. The modifications contain rules which aim at eliminating potential tax accumulation regarding the sale of automobiles which are subject to input VAT deduction bans. The new rules make the sale of automobiles VAT exempt not only if there was non-deductible VAT attached to the purchase of the automobile but also if there was no input VAT attached to the purchase of the automobile – but if there had been any then the person subject to VAT would not have been entitled to deduct it.

 

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Hungary: Stability Savings Account

Alessandro PasutHungary

Stability Savings Account

The tax base will be calculated on the basis of the number of years between deposits and withdrawals: 1 to 3 years: 200%; 3 to 4 years: 100%; 4 to 5 years: 50%; and no tax liability will arise after the fifth year.

There will be no additional payment obligation on the income obtained under this arrangement. Thus private individuals can obtain non-taxable income five years after the deposit is made. However, there is no way to reclaim the taxes already paid on the amount deposited into an SSA.

The SSA can be inherited in a tax-neutral way. The account holder can specify one or more beneficiaries. In this case, the heir will have to be treated as the account holder also in respect of the deposit.

The account-holding credit institution will issue a certificate to the private individual with specified data content on the deposit and withdrawal. Detailed regulations pertaining to the SSA will be laid down in a separate decree.

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Hungary: Deductible expenses

Alessandro PasutAs part of the tax package published last 2013, the scope of deductible expenses for local business tax purposes is extended. According to the amendment, 7.5 per cent of the toll paid and accounted for as expense or cost by shipping companies in the financial year in relation to the usage – based on the actual distance travelled – of highways, motorways and main roads will be considered as deductible from the local business tax payable to local governments of the seat or permanent establishment of a company. Telecommunication tax. The amount of the telecommunication tax payable by the service providers has been raised from 2 HUF to 3 HUF per minute for each initiated phone call and per message sent. The monthly amount of tax payable is limited to HUF 5,000 for non-private household while previously is was HUF 2,500. Financial transaction tax. The tax rate for cash payments from payment accounts and from payment accounts using bank cards is increased from 0.3% to 0.6%. However, in this case the maximum limit of the tax of HUF 6,000 per transaction is abolished.

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Hungary: Transfer pricing

Alessandro PasutTransfer pricing: in case related parties decide to use the new accounting method, differences relating to the current year are to be accounted for in the general ledger of the current year’s balance sheet preparation day at the latest. The authorities have also confirmed that the correction cannot be treated as a modification to the consideration of original and individual transactions if the correction solely aims at the proper profitability in accordance with the contract concluded between the parties. This practically means that issuing a correction invoice mentioned in the VAT Act is not required; the accounting is to be treated as falling out of the scope of VAT and it can be substantiated by any kind of document being considered as acceptable proof according to the Accounting Act. The above rules may significantly ease the operation of companies and clarify the year-end adjustment accounting practice. However an appropriate contractual background and the availability of proper documents are required.

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Hungary: transfer pricing

Alessandro PasutTransfer pricing: after the modification of the Accounting Act in June 2013 followed by its amendment effective since 1 January 2014, related party entities may perform transfer pricing adjustments in a more effective way. The subsequently accounted difference of the arm’s lengths price and the applied price related to sold/purchased products and services during a given period may be accounted for by the related parties as follows.

The difference of prices can be accounted for as part of the historical value of the asset in case of asset purchase; as amendment to costs/expenditures accounted for in case of purchases of services; as part of net sales revenue in case of sales. This practice can be applied even without issuing correction invoices instead of performing corporate income tax base modifications.
As of the tax year 2013, the new rules set out the application of such year-end adjustment corrections instead of the other methods previously used frequently (e.g. other/extraordinary income/expenditure) that often gave rise to significant risks.

 

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Hungary: tax audit focuses

Tax audit focuses. Regarding VAT, the main areas of focus will be the compliance with invoicing obligations, and the verification of transactions on the basis of which invoices were issued. In addition, tax audits will continue to focus on the most typical forms of fraud, including chain transactions.

Together with taxpayers involved in VAT fraud and companies deemed risky from a tax perspective, the natural persons related to these taxpayers who acquire revenue in connection with the operation of these companies will also be subject to tax audits.

In corporate income tax, the following topics will remain crucial: the audit of the adequacy of applicable transfer prices used between related parties, specifically in case of non-conventional price determining methods and the legality of the application of the research and development allowance to the tax base.

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Hungary: tax authority

Alessandro PasutThe Hungarian Tax Authority published a brochure regarding the focus areas of the 2014 tax audits. The brochure sets forth the criteria of the tax audit selection process, the main targets regarding the economic activities, industries and the objectives of the tax audits for this year. In 2014, taxpayers engaged in agricultural and certain industrial and trading activities should expect more frequent inspections.

According to the brochure, for the purposes of its risk assessment process, the tax authorities will specifically consider the circumstances of the seat, personnel changes, the balance of taxes paid to and subsidies claimed from the Budget, and other networks of the taxpayer. Tax registration and increased tax authority supervisory proceedings – that received significant attention last year – will remain a crucial part in the tax audit selection process.

The copying of electronic taxpayer data for purposes of subsequent evaluation will become more frequent. Preventing the manipulation of IT systems is also a priority. During tax audits, the Tax Authority will carry out general reviews of the accounting and invoicing software and other IT systems used by taxpayers.

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Hungary: new tax laws

Alessandro PasutHUNGARY

The Hungarian Parliament adopted some modifications to certain tax laws.

Sport sponsorhip. The popular team sport sponsoring system is modified in the sense that the sponsor of a team sport will be subjected to supplementary sport development subsidy in order to take advantage of the tax credit. The value of such assistance has to be at least 75% of the tax advantage in line with the agreement as stipulated on the support package certificate. However, according to the new regulations the amount of the supplementary development assistance rendered under sponsorship or support agreements are not acceptable for corporate taxation purposes.

The taxpayer has 8 days to notify the Tax Authority about the financial settlement covering support packages. In the case of a failure of such notification there is no possibility for the submission of a verification request.

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Hungary: Corporate Income Tax

Alessandro PasutIn addition to the taxpayer, its related company may also deduct the direct costs of the taxpayer’s own research and development efforts from its pre-tax profit, in the proportion agreed between them. The tax base decreasing item may be applied, if the R&D activities carried out by the related company are related to both the taxpayer’s and the related company’s business activity, and the related company declares the direct costs of the research and development activities and the amount that may be used by the taxpayer. The parties will be jointly liable for the contents of the declaration, and both parties will have to provide information concerning the event in the corporate income tax returns.

The rules of loss carry-forward relating to transformations have been supplemented. In the case of a transformation, the legal successor may deduct the legal predecessor’s negative tax base from its profit before tax for the first time in the tax year that includes the day of the merger.

From 1 January 2014, when determining whether a company qualifies as an owner of real estate, the proportion of the assets/real estate shown in the financial statements must be calculated on the basis of the book values, instead of the market values.

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