This article is the sixth in a seven-part series presenting important rules on corporate taxation in Hungary. After presenting the basic framework and special regimes of corporate tax in Hungary, we provide the following summary regarding the fight against tax avoidance.
Hungary has fully harmonised both Directive 2016/1164 (ATAD) and Directive 2017/952 amending Directive 2016/1164 (ATAD 2) in order to introduce anti-avoidance rules for EU Member States to prevent tax evasion arising from hybrid structures and hybrid transactions.
According to the Hungarian anti-avoidance system, the tax authorities may disregard the tax consequences of transactions without economic substance that are solely tax-driven. Tax benefits are unjustified if they conflict with the objective of the relevant tax provisions and the fundamental principles of the tax system.
The Hungarian tax system contains a number of anti-tax avoidance provisions, primarily related to anti-hybrid rules.
Tax avoidance methods using hybrid structures exploit the situation where the parties concerned are resident in different Member States and the payment made between them is classified differently by their Member States. Due to the different classification, the payment is not taken into account by either party in its tax base, i.e. remains untaxed.
If there is a discrepancy due to different tax classification of the same event, the anti-hybrid rules do not allow the deduction of the relevant costs and expenses from the corporate tax base. This can be avoided by submitting a tax assessment and accepting it by the Hungarian tax authorities.
The tax assessment procedure may relate to a future transaction, a transaction that does not qualify as a future transaction, or based on detailed facts regarding the type of contract.
A tax assessment to determine the fair market price may not be submitted for any tax type or is a request that concerns only an accounting issue.
The fee for the tax assessment procedure is ten million forints (10,000,000 HUF) for a standard contract.
The binding force of the decision made during the tax assessment procedure lasts until the last day of the fifth (5th) tax year following the decision, which can be extended once for another two years. The tax assessment decision is only binding on the tax authority if the facts of the case in the given case remain unchanged.
This article provides a general introduction to Hungarian corporate tax regulations and should not be considered specific legal advice.