This article is the sixth one in a seven-part series of articles covering the important rules of corporate taxation in Hungary. After covering the Basic Framework and Special Regimes of Corporate Tax in Hungary we provide you with the following summary regarding anti-avoidance.
Hungary fully harmonized both Directive 2016/1164 (ATAD) and Directive 2017/952 amending Directive 2016/1164 (ATAD 2) for EU member states for introducing anti-avoidance rules to avoid tax evasions stemming from hybrid structures and hybrid transactions.
According to the Hungarian anti-avoidance regime, the tax authorities can disregard the tax consequences of transactions that are devoid of economic substance and exclusively tax driven. Tax benefits are undue when they conflict with the purpose of the relevant tax provisions and the principles of the tax system.
The Hungarian tax system includes several anti-avoidance provisions relating to anti-hybrid rules in the first place.
Tax avoidance methods using hybrid structures take advantage of the situation when the parties concerned are domiciled in different Member States, and the payment made between them is classified differently by their Member States. Due to the different classification, neither party takes the payment into account in their tax base, i.e. it remains untaxed.
If a difference arises due to a different tax classification of the same event, anti-hybrid rules do not allow to deduct the relevant costs and expenses from the corporate tax base. This can be avoided if a tax ruling is filed and accepted by the Hungarian tax authorities.
Tax ruling procedure may refer to a future transaction, or a transaction that is not considered a future transaction, or based on the detailed facts regarding a type contract.
A tax ruling a request for the determination of the fair market price cannot be submitted for any type of tax, or a request that concerns only an accounting issue.
The fee for the tax ruling procedure is ten million HUF (HUF 10.000.000,-) in the case of a standard contract. The binding force of the decision made during the tax ruling procedure lasts until the last day of the fifth (5.) tax year following the issuance of the decision, which can be extended once by another two years. The tax ruling decision is mandatory for the tax authority only if the facts of the case remain unchanged in the given case.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.