This article is the sixth part of a seven-part series that presents the key rules of corporate taxation in Hungary. After outlining the basics of Hungarian corporate tax and special tax systems, we now focus on the fight against tax avoidance.
Hungary has fully harmonized EU Directive 2016/1164 (ATAD) and its amending Directive 2017/952 (ATAD 2) to introduce rules aimed at combating tax avoidance, with particular emphasis on preventing tax abuses arising from hybrid structures and hybrid transactions.
According to Hungarian tax rules, the tax authority may disregard the tax consequences of transactions that lack economic substance and are solely aimed at obtaining tax benefits. Tax benefits may be invalid if they are contrary to the objectives and principles of the tax system.
The Hungarian tax system contains several provisions in line with the EU’s anti-hybrid rules regarding hybrid structures and tax avoidance methods. These methods exploit situations where the parties involved are registered in different member states, and the payments made between them are treated differently by their respective states. As a result, neither party considers the payment in their taxable base, leaving it untaxed.
If, due to the different tax classification, costs and expenses cannot be deducted from the corporate tax base, the anti-hybrid rules do not allow their deduction. This can be avoided if the company requests a tax ruling from the Hungarian tax authority and it is accepted.
A tax ruling can be requested for a future transaction or for a transaction that is no longer considered future, but it is based on detailed information about essential facts. The fee for the tax ruling procedure is HUF 10,000,000 (ten million forints) for a standard agreement. The effect of the ruling decision remains in force until the end of the fifth tax year following the issuance of the decision, and it may be extended once for an additional two years. The tax ruling decision is only binding on the tax authority if the facts of the case remain unchanged.
This article provides a general introduction to corporate taxation in Hungary and the regulations for fighting tax avoidance, and it should not be considered as specific legal advice.
Dr. Katona Géza, LL.M. ügyvéd (Rechtsanwalt / attorney at law)
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Katona és Társai Ügyvédi Társulás
(Katona & Partner Rechtsanwaltssozietät / Attorneys’ Association)
H-106 Budapest, Tündérfürt utca 4.
Tel.: +36 1 225 25 30
Mobil: + 36 70 344 0388
Fax: +36 1 700 27 57