HUNGARY LAW AND PRACTICE Contributed by: Pál Szabó, Barnabás Simon, Eszter Katona, Ádám Simon, Mihály Harcos, Karim Laribi, Gábor Kutai and István Szalay-Csala, Bird & Bir d
operating in certain industries (eg, environmental tax, “Robin Hood Tax”, excise tax and extra profit tax). 9.2 Withholding Taxes on Dividends, Interest, Etc Hungary does not levy withholding tax on dividend, interest, royalty or management fee payments from Hungarian to non-Hungarian corporate entities. 9.3 Tax Mitigation Strategies Hungary’s tax regulation allows relatively wide scope for the tax efficient operation of businesses. Beyond the withholding tax exemption that applies to divi - dend, interest and royalty payments from Hungarian taxpayers to non-Hungarian corporate recipients, Hungarian taxpayers are subject to tax exemption on their dividend revenues. Furthermore, tax exemption on capital gains realised on the sale of shares is also accessible for Hungarian taxpayers if certain condi - tions are met. Expenditures incurred in relation to the business activ - ity, such as depreciation, interest and royalty pay - ments, are in general deductible from the corporate income tax base, with certain limitations. Limited tax loss carry-forward rules also allow businesses to off - set their future profits with the losses they suffered in the past. Tax consolidation is also possible, both in terms of corporate income tax and VAT. 9.4 Tax on Sale or Other Dispositions of FDI Capital gain derived by a non-Hungarian tax resident investor from the sale of shares in a Hungarian entity or sale of assets located in Hungary is not taxable in Hungary unless the shares or assets are attributable to a Hungarian tax-permanent establishment of the non-Hungarian investor. Special rules may apply to the sale of Hungarian real properties. In such cases, if the regulation of the relevant double tax treaty allows, or in the absence of such applicable double tax treaty, profit realised from the sale of the Hungarian real property may be subject to corporate income tax in Hungary. This cor - porate income tax regulation also applies to the sale
of shares in an entity that has more than 75% of its assets invested in Hungarian real estate. 9.5 Anti-Evasion Regimes The domestic general anti-abuse rule (GAAR) in Hun - gary enables the Hungarian tax authorities to requalify a transaction for tax purposes, if the purpose of the transaction is the abuse or evasion of tax rules. In addition to the GAAR, several specific limitations have been introduced to prevent tax evasion and aggres - sive tax planning. Such limitations include the “thin cap” rules, the “CFC rules”, the “anti-hybrid” rules, as well as the transfer pricing rules. • The interest limitation rule generally disallows the deduction of financial costs from the corporate income tax base if they exceed the higher of 30% of the EBITDA or HUF939 million (approximately EUR2,350,000). • “CFC rules” aim to prevent tax-base erosion arising from the payments made by Hungarian taxpayers to non-Hungarian “controlled foreign companies” as well as to ensure the proper taxation of incomes that Hungarian taxpayers receive from “controlled foreign companies”. • Driven by similar purposes, “anti-hybrid” rules aim to prevent tax leakage in cross-border transac - tions. Hungarian “anti-hybrid” regulation covers several cross-border transactions that may lead to tax base erosion due to the different tax treatment of the cross-border transaction in the respective jurisdictions. • Transfer pricing rules in Hungary follow the OECD guidelines, specifically that transactions between associated enterprises shall be considered, for tax purposes, as occurring on an arm’s length basis – ie, at the price that unrelated parties apply or would apply in an equivalent transaction. If the price applied by affiliated entities differs from the arm’s length price, then the Hungarian tax author - ity may adjust the tax base to reflect the arm’s length price. In general, associated enterprises are required to prepare separate documentation that shows how the arm’s length price specific to their transaction has been determined.
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