EU ATAD Implementation in Hungary – Corporate Income Tax 2019
By Béla Kakuk, BPiON Services Ltd.
One of the most important objectives of the international taxation regime is to allocate taxation where profit and value is generated in order to guarantee trust over truthfulness of tax regimes and effective taxation sovereignty of local governments. The European Unions Anti-Tax Avoidance (ATAD) (2016/1164/EU) directive brought new rules preventing tax evasion and aggressive tax optimisation.
Rules are grouped into four different fields, such as taxation of capital disinvestments, foreign controlled entities, actions against misuse of regulations and thin capitalisation. The basic objective of the directive is to prevent tax-base take away through excessive interest payments, therefore setting limits on the eligible level of interests. Regulations of the directive came into force in Hungary in 2019 and changed the old thin-capitalisation rules completely. According to the new regulation, in case of net financing costs (payable interest exceeding the receivable ones) being higher than 30% of the EBITDA, or the defined EUR 3 million (HUF 939.81 million), whichever is higher, the tax base should be increased with the surplus. The regulation states that, in certain cases, the prior tax increasing item may even be carried forward to decrease future tax bases.
New rules on thin capitalisation should be used for agreements made or modified after 17 June 2016. Agreements before this date may fall under the scope of the new regulation based on the companies’ decision. Financial institutions, investment funds and, in certain cases, group companies subject for consolidated financial statements (equity/total assets ratio are higher than the group average), are out of the scope of the new regulation.
The new thin-capitalisation rules are more beneficial for SMEs, since they can avoid any tax-base-modifying action up to EUR 3 million net financing costs, which is sometimes higher even than their total revenues.
Béla KakukBPiON, Budapest, Hungary
T: +36 70 679 0279
BPiON Services Ltd. provides newwave accounting, HR and payroll, and administration-outsourcing services embraced by technology, based in Budapest, Hungary.
Béla Kakuk has more than 16 years’ experience of multi-country BPO services. Co-founder and CEO of BPiON, he is a FCCA qualified professional and registered Tax Advisor. He graduated from Hult International Business School’s EMBA and is an Honorary University Professor of the Budapest Business School.
Published: International Taxation, No. 10, Spring 2019 l Photo: 4th Life Photography - stock.adobe.com