Hungarian Lawmakers To Decide On Tax Cuts Plan
Friday, July 5, 2019
Hungary's 2020 Budget law is before parliament for approval. Most tax-related proposals would become effective from the start of 2020.
The so-called Economy Protection Action Plan includes the following proposals:
- A reduction in the social contributions tax from 19.5 to 17.5 percent effective
July 1, 2019;
- A one percent cut in the small enterprise tax (KIVA) from 13 to 12 percent
effective January 1, 2020;
- The abolition of the simplified entrepreneur tax (EVA) and the merging of
pension contributions, healthcare contributions, and unemployment contributions
into a single levy;
- The abolition of advanced corporate tax payments, which applies to firms
with annual turnover in excess of HUF100m (USD343,310). This means that the
affected businesses must settle their tax payments with their tax returns
by May 20 each year, instead of on December 20 in the previous year.
- The deferral of the advertising tax from January 1, 2020, to December 31,
- A reduction in VAT on accommodation services from 15 to eight percent and
the extension of the four percent tourism tax to these services;
- VAT refunds of up to HUF5m for taxpayers constructing new homes or renovating
existing properties in small settlements from January 1, 2020; and
- The gradual reduction in the project value threshold for the development
tax discount from the existing level of HUF500m to HUF50m for small business
and to HUF100m for medium-sized firms by 2023.
The legislation before parliament would also introduce the latest anti-tax avoidance provisions proposed at EU level into Hungarian law, including the EU's new exit tax and rules to counter hybrid mismatches relating to third countries.
EU exit tax
The EU's exit tax is intended to prevent companies from avoiding tax on gains on assets such as intellectual property that is moved from a member state's territory, typically to a lower tax territory. The new exit tax is intended to enable that member state to tax the value of the product before the intellectual property is shifted elsewhere.
Under the Anti Tax Avoidance Directive I, a taxpayer shall be subject to tax at an amount equal to the
market value of the transferred assets, at the time of exit of the assets, less
their value for tax purposes, in any of the following circumstances:
- a taxpayer transfers assets from its head office to its permanent establishment
in another member state or in a third country in so far as the member state
of the head office no longer has the right to tax the transferred assets due
to the transfer;
- a taxpayer transfers assets from its permanent establishment in a member
state to its head office or another permanent establishment in another member
state or in a third country in so far as the member state of the permanent
establishment no longer has the right to tax the transferred assets due to
- a taxpayer transfers its tax residence to another member state or to a third
country, except for those assets which remain effectively connected with a
permanent establishment in the first member state;
- a taxpayer transfers the business carried on by its permanent establishment
from a member state to another member state or to a third country in so far
as the member state of the permanent establishment no longer has the right
to tax the transferred assets due to the transfer.
EU member states must transpose the ATAD's exit tax rules into domestic law by December 31, 2019.
Hybrid mismatches can result in either double deductions for the same expense, or deductions for an expense without the corresponding receipt being fully taxed. Hybrid mismatch outcomes can arise from hybrid financial instruments (both equity and debt) and hybrid entities, and from arrangements involving permanent establishments. They can also arise from hybrid transfers and dual resident companies.
The Directive states that when hybrid mismatches result in a double deduction, the deduction shall be given only in the member state where such payment has its source. When a hybrid mismatch results in a deduction without inclusion, the member state of the payer shall deny the deduction of such payment.
ATAD II addresses hybrid mismatches with regard to non-EU countries. It is therefore intended to ensure that hybrid mismatches of all types cannot be used to avoid tax in the EU, even where the arrangements involve third countries.