On 27 July 2022, Act XXIV of 2022 on the foundation of the 2023 central budget of Hungarywas published, which amends several tax laws to a greater or lesser extent.
In our previous article, we described the main contemplated changes of the related bill, all of which were adopted without major changes. In the meantime, changes have also been made to the application of the reduced VAT rate of 5% for new flats and to the extra profit tax payable by petroleum product producers.
The adopted tax law changes by tax items and in the order in which they enter into force are as follows:
Personal income tax
Entering into force on 28 July 2022
- The amendment also allows the Hungarian Tax Authority (HTA) to publish, in connection with the fuel cost accounting according to the consumption standard, the consumer price of a fuel that is typically distributed by only one large fuel distributor entity (CNG - compressed natural gas) with national scope.
- Young people under 25 years of age are able to declare that they do not wish to claim the benefit that may apply to them because of their age, going forward this is effective not only to their employer or to the payer of their regular income, however to all disburser entities.
- The amendments simplify matters for members of entities of family farms to apply a different tax treatment for VAT purposes. In practice, it happened, for example, that one taxable person exceeded the threshold for VAT exemption, to which the other taxable persons had to adapt under the strict rules that applied previously. The amendment eases this restriction for VAT purposes.
- In the case of non-Hungarian tax resident individuals, they are required to submit proof of their foreign tax residency no later than 12 January of the year following the tax year.
Entering into force on 26 August 2022
- A job search incentive is included in the definition of wages, alongside the earnings-related allowance.
Entering into force on 1 October 2022
- The legislation also includes rules on fuel standards and fuel prices for plug-in hybrid and electric cars, and add annexes on the accounting of costs and expenditures relating to vehicles.
Corporate income tax
Entering into force on 28 July 2022
- A new pair of tax base adjustment items is introduced in relation to the impairment of shareholdings, which can be applied for the first time in determining the tax liability for the tax year 2022 to the impairment recognised in the tax year 2022.
Entering into force on 26 August 2022
- A new definition is introduced for the arm’s length price range.
- In the context of transfer pricing, a new liability is introduced, which have to be fulfilled for the first time in a tax return submitted after 31 December 2022. Under this requirement, anyone required to keep transfer pricing records has to provide information on the determination of the arm's length price in its corporate income tax return.The details of this rule is going to be set out in a separate decree (a draft decree has not yet been published).
- The rules on the application of the interquartile range are renewed, for the first time for the determination of the corporate income tax liability for the tax year starting in 2022. Following the amendment, the interquartile range is mandatory where the taxpayer determines the arm's length price on the basis of data from public databases or databases verifiable by the HTA. However, the exemption from the use of the interquartile range continues to apply where the taxpayer determines the arm's length price on the basis of, for example, internal or external (non-database based) comparable transactions or contracts.
- The amendment introduces new provisions on the determination of the arm's length price and update the relevant provisions for its application. If the consideration for the related party falls outside the arm's length range, the median will in principle be taken as the arm's length price, i.e. the transfer price adjustment is required to be made up to this point. An exception to this may be if the taxpayer was able to demonstrate that a value within the range other than the median best reflects the transaction under consideration.
- Taking into account the above amendments and the adopted changes relating to penalties, significant changes and tightening in the area of transfer pricing reviews are entered into force. This has been anticipated and confirmed by the 2022 audit plan of the Hungarian Tax Authority (see related article here ).
- The Smart TPD online platform, developed by TruTax in cooperation with Céginformáció.hu, can provide a flexible, fast and cost-effective solution for the preparation of transfer pricing documentation, which is becoming increasingly demanding and administratively burdensome. For more information about the user friendly software, please visit our website: Smart TPD – TruTax
Value added tax
Entering into force on 28 July 2022
- The amendment clarifies that the representative appointed at the time of the dissolution of the VAT group will still be entitled to make a valid VAT declaration, e.g. to submit a self assessment, even after the dissolution of the VAT group.
- New provisions are also introduced concerning the rules on cash refund schemes, triggered by a judgment of the Court of Justice of the European Union (case No. C-717/19). The rules cover the substantive conditions for the tax base reduction and how the tax base reduction can be claimed in this case. Under transitional provisions, taxpayers can apply the new rules to refunds made after 31 December 2021 in certain cases.
Entering into force on 1 January 2023
- The amendment was published in the Hungarian Official Gazette No 128 according to which the reduced VAT rate of 5% for new flats will be applied until 31 December 2024.
Social contribution tax
Entering into force on 28 July 2022
- The new provision settles the case of farmers who change their social security status during the year, and how the annual liability is to be determined.
Entering into force on 26 August 2022
- Under the current rules, the proportional rate of social security contributions and social contribution tax is determined on the basis of calendar days. Under the amendment, the proportionality is based on working days instead of calendar days.
Tax for small companies (so called KIVA)
Entering into force on 26 August 2022
- A small business taxpayer is required to take into account the interquartile range and the determination of the tax base adjustmentwhen applying the arm's length principle, in line with the changes in the Act on Corporate Income Tax.
Innovation contribution
Entering into force on 26 August 2022
- The amendment extends the scope of those liable to pay the innovation contribution: the Hungarian permanent establishments (PEs) of foreign-based companies,including branch offices, also become liable to pay this contribution.
- Under transitional provisions, Hungarian establishments of foreign-based companies are required to pay an advance payment of innovation contribution for the 2022 tax year and the first two quarters of the 2023 tax year.
The rules of taxation
Entering into force on 27 August 2022
- A significant increase in the amount of the tax penalties for non-compliance with the obligation to prepare transfer pricing documentation (HUF 5 million and HUF 10 million compared to the current HUF 2 million and HUF 4 million) is intended to promote compliance with the obligation to prepare transfer pricing documentation.
- The administrative fee for the determination of the arm’s length price of a transaction (so called Advance Pricing Agreements, APAs)increases. Applicants have to pay HUF 5 million for a unilateral procedure and HUF 8 million for a multilateral procedure, with no instalment or deferral allowed.
- As a mitigating measure, in the case of repeated cash register failures, the Hungarian tax authority does not automatically apply the closure of business (shop) sanction, however, has the possibility to consider the seriousness of the infringement made.
Company car tax
Entering into force on 1 January 2023
- The nearly doubled tax rates for company cars introduced by the government's Decree on Extra Profit Taxes for the second half of 2022, described in our previous article are carried over into the Motor Vehicle Tax Act, so the increased rates remain in place from 2023.
Extra profit tax
Entering into force on 1 August 2022
- The extra profit tax rate payable by the producer of petroleum products increases from 25% to 40%. The increase was published in the Hungarian Official Gazette No 129.