According to an OECD survey, roughly $700 billion in tax benefits are lost in tax havens and low-tax countries every year. Hungary is introducing international regulations against this in such a way that the so-called local business tax, energy suppliers’ income tax and the innovation contribution are classified as “covered taxes”, i.e. taxes to be included in corporate tax.
The expected introduction of the global minimum tax next year has a long history. After the financial crisis, the governments of the OECD countries began to deal intensively with the objective of preventing the ever-increasing international tax evasions taking place in the framework of income redistribution and tax optimization. According to the OECD survey, approximately 700 billion dollars of tax benefits disappear in tax havens or in low tax countries. As a result, the OECD finally decided in 2019 to initiate an international agreement on the so-called in order to prevent fair taxation and tax evasion. Events accelerated after the new president of the United States, Joe Biden, and his administration were clearly behind the objective. It should be remembered that the previous president, Donald Trump, strongly opposed the global minimum tax and he himself, primarily in order to lure companies located abroad, implemented a significant corporate tax reduction.
Compared to the complexity of the issue, an international framework agreement was reached in a relatively short time, in the summer of 2021, which accepted the introduction of the globally valid 15% minimum profit tax. At the time, 132 countries supported this agreement, and only three of the countries participating in the negotiations (Hungary, Estonia and Ireland) opposed it. At the same time, the participating countries decided to introduce the global minimum tax, since the supporting countries represented more than 90% of the world economy and the accepted rules made it possible for a company from a participating state to pay a lower profit tax of 15% in a country that is not a party to the agreement. at, then the difference between the corporate tax paid locally by the company and the 15% can be collected by the participating country from the given company. According to the OECD’s estimate, with the introduction of the global minimum tax, the total additional tax revenues of the member states can be increased to 150 billion US dollars annually.
The position of the Hungarian government changed several times during the process. As we have seen, he was still against the minimum tax in the summer of 2021, because according to him tax competition is an important element of the competitiveness of the Hungarian economy and since the corporate tax is only 9% in our country, this would mean a tax increase for the companies operating in our country as well. In comparison, in October 2021, the Minister of Finance announced that Hungary would still join the agreement under certain conditions. At that time, the European Union decided to adopt a common directive on the introduction of the global minimum tax, thus promoting uniform rules for the minimum tax within the EU. In comparison, in the summer of 2022, the Hungarian government unexpectedly vetoed the common European directive, preventing the rules from entering into force on January 1, 2023. At that time, in addition to the importance of tax competition, they cited as a new element that tens of thousands of jobs could be endangered by the adoption of the legislation. This step caused quite a lot of confusion and negative reactions from the other member states. Although it cannot be proven, analysts generally agree that this Hungarian move played a significant role in the United States’ decision to terminate the double taxation treaty.
Intensive negotiations followed the Hungarian veto and finally a compromise was reached by the end of the year, the so-called with regard to covered taxes, which made it possible for the Hungarian government to join the contract.
Finally, with a delay of one year, on January 1, 2024, the global minimum tax will enter into force in the territory of the European Union as well.
At the end of October, the Hungarian government submitted detailed rules for the introduction to the Parliament. The very detailed and thorough legislation covers 80 pages of application rules. Although this legislation has not yet been adopted by the Parliament, it is no longer expected that regulations different from the planned ones will be adopted in the case of important details. (The Parliament will vote on the bill on Tuesday – ed.)
The Ministry of Finance completed the impact assessment with record speed, in about six hours, according to which, contrary to previous assumptions, the adoption of the legislation strengthens the competitiveness of the Hungarian economy and also results in a significant amount of additional tax revenue (according to their calculations, in the amount of about HUF 96 billion between 2024-2026).
What is worth knowing about Hungarian regulations?
The most important thing is that this regulation only affects companies with an annual income of more than EUR 750 million, i.e. companies with an annual income of more than HUF 280-300 billion, depending on the exchange rate. According to the regulations, this applies if the company’s revenues have reached or exceeded this value at least twice in the last four tax years.
This indicates that the vast majority of Hungarian small and medium enterprises are not affected by the minimum tax in any way. Based on the 2020 corporate income data, the income of a total of 33 Hungarian companies is subject to legal regulation, some of which are Hungarian-owned companies or groups of companies. The best-known Hungarian-owned companies involved are: MOL, OTP, Wizzair, Richter, MVM, MBH, Szerencsejáték Zrt, National Toll Payment Service. The others are Hungarian subsidiaries of international multinationals.
We cannot determine the exact number of these affected companies, according to some estimates, up to a thousand companies may be affected, because according to the regulations, the income is examined at the company group level, so if the parent company is subject to the rules of the global minimum tax, then the local subsidiary is also affected, regardless of whether the its revenues here do not reach EUR 750 million.
In Hungary, corporate tax remains at 9%. At the same time, the effective tax, i.e. the actually paid tax, has been between 5 and 6 % for years due to various discounts.
Hungary joined the agreement on the condition that the so-called The local business tax (HIPA), the income tax of energy suppliers and the innovation contribution are also classified as “covered taxes”, i.e. taxes to be included in the corporate tax.
There is an additional discount for start-ups, according to which the company group can be exempted from the obligation to pay the minimum tax for five years in the initial stage of its activity.
Because of the minimum tax rules, the Hungarian Accounting Act will also be amended, and the concept of “deferred tax” and the detailed rules for its calculation will be introduced. In addition, the chapter of the Tao Act on R&D allowances is amended at several points, and a new R&D tax allowance title appears.
The domestic implementation rules of the global minimum tax are regulated in detail in the draft, such as the detailed rules for tax obligations, the rules for taking into account the mutual profits and losses of the members of corporate groups, the rules for the amount of the tax and its calculation.
For now, only the draft is known, but the final regulation will most likely not differ from it.
It can be seen that it is an extremely complicated and complex regulation, therefore, especially during the introductory period, the companies concerned should use the help of tax advisors specializing in the issue.
The author of the article is Ilona Orbók, managing director and partner of BDO Hungary. BDO Hungary is the professional partner of Adó Online.