In this article, we present the Government's bill T/360 on the foundation of the 2023 central budget of Hungary.
Contrary to expectations, this proposal does not change the rules on taxes for small entrepreneurs (so called KATA rules) for the time being, and would rather introduce provisions to fill gaps in other laws. However, significant changes in the area of transfer pricing are expected under the current proposal in the areas of the arm’s length price range, data reporting, transfer pricing adjustments and the statistical narrowing of the arm’s length price range.
The contemplated tax law changes by tax items and in the order in which they enter into force are as follows:
Personal income tax
Would enter into force the day after the publication of the relevant Act
- The amendment would also allow 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 would be able to declare in general that they do not wish to claim the benefit that may apply to them because of their age, going forward this would be effective not only to their employer or to the payer of their regular income, however to all disburser entities.
- If the amendments are adopted, it would simplify matters for members of entities of family farms to apply a different tax treatment for VAT purposes. In practice, it has happened, for example, that one taxable person has exceeded the threshold for VAT exemption, to which the other taxable persons have had to adapt under the strict rules that applied until now. The amendment eases this restriction for VAT purposes.
- In the case of non-Hungarian tax resident individuals, they would be required to submit proof of their foreign tax residence no later than 12 January of the year following the tax year.
Would enter into force 30 days after the relevant Act enters into force
- A job search incentive would be included in the definition of wages, alongside the earnings-related allowance.
- Would enter into force on 1 October 2022
- The legislation would also include 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
Would enter into force the day after the publication of the relevant Act
- A new pair of tax base adjustment items would be introduced in relation to the impairment of shareholdings, which could 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.
Would enter into force 30 days after the relevant Act enters into force
- A new definition would be introduced for the arm’s length price range.
- In the context of transfer pricing, a new liability would be introduced, which would have to be fulfilled for the first time in a tax return submitted after 31 December 2022. Under this requirement, anyone required to prepare transfer pricing documentation would have to provide information on the determination of the arm's length price in their corporate income tax returnThe details of this rule would be set out in a separate decree (a draft decree has not yet been published).
- The rules on the application of the interquartile range would be 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 would be mandatory where the taxpayer determines the arm's length price on the basis of data from public databases or databases verifiable by the Hungarian Tax Authority. However, the exemption from the use of the interquartile range would continue 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 proposal would introduce new provisions on the determination of the arm's length price and update the relevant provisions for its application. If the consideration applied by the related parties 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 would be required to be made up to this point. An exception to this may be if the taxpayer is able to demonstrate that a value within the range other than the median best reflects the transaction under consideration.
- Taking into account the above proposed amendments and the contemplated changes relating to penalties, significant changes and tightening in the area of transfer pricing are expected. This has been anticipated and confirmed by the 2022 audit plan of the Hungarian Tax Authority (see related article here ).
- Az egyre nagyobb és komolyabb adminisztrációt igénylő transzferár dokumentáció elkészítésében a Céginformáció.hu-val közösen kifejlesztett 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
Would enter into force the day after the publication of the relevant Act
- The amendment would clarify 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 would 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 could apply the new rules to refunds made after 31 December 2021 in certain cases.
Tax for Small Entrepreneurs (so called KATA)
Would enter into force the day after the publication of the relevant Act
- The proposal would add a new provision to the cases of termination of tax liability,according to which the tax liability of a law firm would cease on the date of its removal from the register of chamber of lawyers in the event of its dissolution without successor.
Would enter into force 30 days after the relevant Act enters into force
- A loophole in the conditions for becoming a small (KATA) taxpayer would be closed. The current rules implied that if a taxpayer's tax number was cancelled after two years, he or she would be entitled to register under the favourable tax rules of KATA. The law would change this, with the addition that a business that is subject to a tax number cancellation at the time of filing would not be able to opt for KATA rules regardless of when the cancellation occurred.
- Taking into account the provisions of the proposal that currently do not show any changes to the current rules, there is a possibility that further changes will affect those who opt for the KATA rules,the KATA rate, the benefits available to small taxpayers and even the rules on the separation from employment.
Social contribution tax
Would enter into force the day after the publication of the relevant Act
- 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.
Would enter into force 30 days after the relevant Act enters into force
- 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 would be based on working days instead of calendar days..
Tax for small companies (so called KIVA)
Would enter into force 30 days after the relevant Act enters into force
- A small business taxpayer would be 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
Would enter into force 30 days after the relevant Act enters into force
- The amendment would extend 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 a transitional provisions, Hungarian establishments of foreign-based companies would be 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
Would enter into force 30 days after the relevant Act enters into force
- 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.
Would enter into force on the 31st day after the relevant Act enters into force
- The administrative fee for the determination of the arm’s length price of a transaction (so called Advance Pricing Agreements, APAs)would increase. Applicants would 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 would not automatically apply the closure of business (shop) sanction, however, would have the possibility to consider the seriousness of the infringement made.
Company car tax
- Would enter 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. kétszeres mértékű adótétel emelések átemelésre kerülnének a gépjármúadóról szóló törvénybe, így a megemelkedett mértékek 2023. évtől is megmaradnak.