OVERVIEW: Hungarian tax law: a year in review
Hungary’s tax policy has remained consistent with that of previous years in 2019, although two tax packages (i.e. legislative acts each amending several tax acts) were adopted by the Hungarian Parliament. Therefore, Hungary remains committed to providing an attractive tax environment for foreign direct investment, including reducing the employers’ employment-related tax burden and, in general, income taxes, while increasing a significant share government revenue through value added tax. (VAT).
The rationale for a number of tax law changes below is either to promote this tax policy, to implement EU directives, or to ensure compliance with the requirements set out in the Court’s judgments. Justice of the European Union (CJEU).
Summer tax package
The summer tax package includes among others the following changes, which, unless otherwise specified, entered into force on January 1, 2020:
- exit taxation to prevent taxpayers from evading corporation tax when transferring assets, business activities or their place of effective management from Hungary;
- hybrid asymmetry rules to combat double deduction or non-inclusion deduction results resulting from differences in the legal characterization of payments, financial instruments and entities, or in the allocation of payments under the laws of two jurisdictions or more ;
- a scheme allowing suppliers to recover the VAT previously paid on bad debts when the date of provision of the respective transaction falls in 2016 or after;
- a procedure for customers allowing them to recover unduly invoiced VAT directly from the tax authorities in cases where they could not otherwise recover this VAT (this was introduced to comply with the CJEU ruling in C- 691 / 17—Porr Építési Kft.);
- new rules for call-in stock (for example, information on the supply concerned must be indicated in the summary report to be submitted by the supplier. If 12 months pass without the commodity being called, the simplification of the stock appeal will no longer apply and the VAT implications of the transfer of own goods to another Member State would apply);
- the obligation of suppliers to duly indicate intra-Community deliveries in the summary statement as a condition for them to be able to avail themselves of the tax exemption of these deliveries;
- in the event of a chain operation, the intra-Community delivery will be deemed to have been made by the intermediary who organized the transport if he communicates to his supplier the VAT identification number issued to him by the Member State of origin shipped or transported;
- the social tax rate was reduced to 17.5% on July 1, 2019; and
- Rate of 0% for the tax on advertising turnover between July 1, 2019 and December 31, 2022 instead of the flat rate of 7.5% which had been in force since July 1, 2017 (this tax was initially introduced with progressive tax rates, which were recognized as state aid incompatible with the internal market, by a decision of the European Commission, which was overturned by the judgment of the General Court of the CJEU in the case T-20/17 — Hungary v. The judgment has been appealed by the European Commission and, therefore, the case is still pending).
Fall tax package
The following measures have, among others, been decreed with the autumn tax package:
- the obligation to report real-time invoices from suppliers will be extended to all invoices documenting national business-to-business (B2B) supplies, regardless of the amount of VAT invoiced on these invoices from July 1, 2020 (currently, this obligation only applies if the amount of VAT reaches 100,000 forints (326);
- From January 1, 2021, the scope of the real-time supplier invoice reporting obligation will be further extended to cover invoices documenting domestic business-to-consumer (B2C) supplies as well as exports and intra-community supplies; and
- From July 1, 2020, invoices on which VAT is charged must, as a rule, be issued within eight days of the date of delivery.
Outlook for 2020
When it comes to the outlook for Hungarian fiscal policy in 2020, there are no signs of any significant change. In fact, the Hungarian government has made it known that it intends to ease the tax burden on businesses and significantly reduce the number of taxes.
Another area of interest is the digitization of the tax administration: thanks to the extension of the scope of the declaration of invoices in real time, the Hungarian tax administration can better fight against VAT fraud and reduce further the VAT gap, which will lead to additional VAT revenue of 200-250 billion forints in 2019.
In line with the latter, in December 2019 the tax administration launched a public consultation on the implementation of the Standard Audit File-Tax (SAF-T), which is an international standard for the electronic exchange of reliable accounting data from organizations to a national tax authorities. the authority or external auditors specified in the recommendations of the Organization for Economic Co-operation and Development. The eventual adoption of the Hungarian SAF-T can lead to shorter and more efficient tax audits by strengthening the capacity of the tax administration to identify and focus on tax risks.
János Pásztor is Senior Associate and Bence Kalman is Associate at Wolf Theiss, Hungary.
This column does not necessarily reflect the opinion of the Bureau of National Affairs, Inc. or its owners.