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It is a fundamental principle of the European Union’s waste policy that producers, manufacturers should bear the costs of waste management at the end of each product’s life cycle. This scheme is called extended producer responsibility, with the acronym EPR also commonly used in Hungarian to refer to it.
In line with EU principles, the Government Decree on the extended producer responsibility scheme (hereafter: EPR Decree) was promulgated on 14 March 2023. The transformation of the Hungarian waste management system concerns two important segments, the performance of waste management activities and its financing.
Under the new legislation, waste management tasks that are currently the responsibility of the state will in future be carried out by the concession holder. This concession has been granted to MOHU MOL Hulladékgazdálkodási Zrt. (hereinafter: MOHU) for a period of 35 years. In line with the relevant EU directives, the financing of waste management in Hungary will be provided by EPR fees collected from producers and manufacturers.
In the following, we provide a brief summary of the most important details concerning the new EPR fee:
Activities subject to EPR fees
From 1 July 2023, an EPR fee will be charged after “circular economy products” placed on the market by their producers.
As a general rule, placing on the market means:
a) the initial transfer of the ownership of the circular economy product,
aa) in Hungary, weather for free or for consideration, or
ab) transfer from abroad to Hungary as an electronic commercial supply for households or other users,
b) the use of the product for own purposes, and
c) the removal of the product from a VAT warehouse or product charge warehouse to Hungary.
Use for own purpose is defined as the use of a circular economy product primarily for the purposes of the producer or its employees, for R&D, investment, renovation or maintenance, or for any other use, provided that the product becomes waste after such use within Hungary.
Products subject to the EPR fee
The scope of circular economy products concerned is defined in the EPR Decree by way of detailed definitions or by reference to other legislation or different tariff headings. In simple terms, the following are considered to be circular economy products:
1.packaging;
2. certain single-use and other plastic products, such as
2.1 food containers;
2.2 bags made of flexible materials;
2.3 beverage containers with a capacity of 3 litres or less;
2.4 beverage cups;
2.5 lightweight plastic carrier bags;
2.6 wet wipes;
2.7 balloons;
2.8 tobacco products with filters;
2.9 fishing gear;
3. electric appliances and electronic equipment;
4. batteries and accumulators;
5. motor vehicles;
6. tyres;
7. office paper/stationery products;
8. promotional paper products;
9. cooking oil and grease;
10. textile products; and
11. wooden furniture.
The determination of the amount of the EPR fee
The EPR fee will be based on the volume of products placed on the market, multiplied by the EPR fee rates to be set by a separate decree issued by the minister responsible for waste management. At the time of writing, the draft ministerial decree is not yet available, and therefore it is not yet known how much the EPR fee will increase the costs for businesses.
It is important to stress that the environmental product charge (Hungarian acronym: “KTD”) will remain alongside the EPR fee; and in case a company has both an EPR fee and an environmental product charge liability for a product, it can deduct the amount of the EPR fee from the amount of the environmental product charge.
Under the new decree, the scope of circular economy products covered by the EPR scheme and the products subject to the environmental product charge overlap considerably, but they are far from identical. Therefore, the correct classification of products according to the different definitions of the different legal requirements may become a major challenge for economic operators.
A further difficulty may be that while the environmental product charge has to be declared and paid to the National Tax and Customs Administration (NAV) and is also audited by NAV, the powers related to the EPR fee (EPR registration, EPR fee declaration and audit, payment) are shared between the waste management authority (the Pest County Government Office, hereinafter: the Authority) and the concessionaire, i.e. MOHU.
On the basis of the above, the number of companies subject to the EPR fee may be higher than the number of those subject to the environmental product charge system, and the administrative burdens of these companies will increase significantly as a result of the introduction of this new public charge.
Obligation to register by 31 May
Companies subject to the EPR fee will have to register with the waste management authority by 31 May 2023. Prior to that, however, they will have to provide the information required under Annex 3, point 1 of the EPR Decree on the electronic interface operated by MOHU. Fines may be imposed on those who fail to comply with their obligation to register for the EPR. The amount of such fines is still uncertain, but the Authority will have the power to impose waste management fines on businesses if they fail to comply with their registration obligations despite being called upon to provide the missing information. If a company fails to comply with its registration obligation even after the fine has been imposed, the Authority will suspend the placing on the market of the circular economy product until the missing EPR registration has been completed and the EPR fee has been paid for the circular economy products placed on the market before the registration.
Concession subcontracting by 20 May
For certain circular economy products, there will also be the possibility (in certain cases, obligation) of “individual fulfilment”, which involves the acceptance, recovery and disposal of the waste generated by the product in the circular economy product stream.
Individual fulfilment can be chosen in case of
- electric appliances and electronic equipment,
- motor vehicles, as well as
- industrial or automotive batteries and accumulators.
Producers of products with a deposit on their packaging can only perform their EPR obligations by way of individual fulfilment.
In case of individual fulfilment, a concession subcontract must be concluded with MOHU. The conclusion of such a subcontract can be initiated through the electronic interface operated by MOHU, which process must be concluded by 20 May 2023. The EPR fee payable can then be reduced in case of individual fulfilment by the amount of the specific cost as determined by the Hungarian Energy and Public Utilities Regulatory Office.
Setting up a system of EPR records by 1 July
Obligated parties must set up and operate a system of records in accordance with the requirements of the EPR Decree in such a way that it is suitable for full compliance with the reporting obligations and for ensuring the traceability of the flow of products and wastes in case of an audit.
EPR reporting by the 20th day of the month following the end of the quarter concerned
Businesses concerned must provide the Authority with the information necessary to determine their EPR obligations by the 20th day of the month following the end of each quarter, using the form made available for this purpose by the Authority. The Authority will forward the data received to MOHU by the 25th day of the month after the end of each quarter.
Payment of the EPR fee on the basis of MOHU’s invoice
On the basis of the data received, MOHU will issue an invoice for the amount of the EPR fee for the quarter in question to the businesses concerned, which will then have to pay the EPR fee to MOHU within 15 days of receipt of the invoice.
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If you have any questions regarding the above or need professional assistance in setting up your system of EPR records, Grant Thornton tax experts are ready to help you and your company!
This newsletter is based on the information available at the date of its publication and is written for general information purposes only; therefore, it does not constitute or replace personalised tax advice in any respect.
Yesterday, Government Decree 62/2023 (II.28.) was promulgated, which modifies the extra profit (or windfall) tax rules with effect from 1 March, but also retroactively in relation to certain provisions. The present issue of our newsletter provides a summary of these changes.
Extra profit tax for pharmaceutical manufacturers
A favourable rules is introduced with retroactive effect for the tax year 2022 whereby companies engaged in the manufacture of basic pharmaceutical products (TEÁOR code 2110) and the manufacture of pharmaceutical preparations (TEÁOR code 2120) will only be required to pay a progressive extra profit tax on their revenue, in bands of 1% to 8%, if their aggregate net revenue from the activities of the under the 2110 and 2120 TEÁOR codes, as calculated on the basis of their latest annual accounts available on the first day of the tax year exceeds 33.33% of their total net revenue. In other words, as a basic rule, for tax year 2022, the data in their annual accounts for the 2020 business year must be used. (Under the earlier rule, even the smallest amount of revenue from the abovementioned activities created an extra profit tax liability for the entire net revenue.)
Contributions to be paid by airlines
On the one hand, the new government decree modifies the minimum and maximum tax rates for contributions to be paid by airlines with effect from 1 March, and on the other hand, it also prescribes a new method of determining the tax base, with retroactive effect from 1 January 2023.
The amount of the contribution for preferential-rate destinations (Albania, Andorra, Bosnia and Herzegovina, Bosnia and Herzegovina, Northern Macedonia, Iceland, Kosovo, Liechtenstein, Moldova, Monaco, Montenegro, United Kingdom, Norway, San Marino, Switzerland, Serbia, Ukraine and Member States of the European Union):
| Emission unit
per aircraft seat |
Contribution / passenger January – February 2023 |
Contribution per passenger from March 2023 |
| less than 10,5 kg | HUF 2,700 | HUF 1,600 |
| between 10.5 kg and 17.5 kg | HUF 3,900 | HUF 3,900 |
| 17.5 kg or more | HUF 5,100 | HUF 6,200 |
For all other destinations:
| Emission units
per aircraft seat |
Contribution / passenger January – February 2023 |
Contribution / passenger from March 2023 |
| less than 10,5 kg | HUF 6,800 | HUF 3,900 |
| between 10.5 kg and 17.5 kg | HUF 9,750 | HUF 9,750 |
| 17.5 kg or more | HUF 12,700 | HUF 15,600 |
The government decree sets 30 March as the deadline for retroactive reporting by airlines for the month of January, since
-
previously, the carbon-dioxide emissions value per seat according to the ACI Airport Carbon and Emissions Reporting Tool had to be used as the basis for calculating the contribution, but this has been replaced
-
with retroactive effect to January, and now the average fuel burned during the take-off and landing cycle has to be used, as defined in the Engine Emissions Databank of the International Civil Aviation Organization (ICAO) multiplied by the number of engines and the emissions value (3.16) per seat, as the basis for the contribution to be paid.
In view of the above, as a transitional rule, the entity subject to the contribution payment obligation, i.e. the ground handling company providing passenger and baggage handling services, may revise its January monthly return until 29 April without the obligation to make any additional payment.
Public health product tax (NETA)
With effect from 1 March, in addition to the two previous exemptions, a third one will be introduced (where the buyer sells the goods subject to NETA either directly or after manufacturing its own products in the framework of intra-Community supply or export): from now on, exemption from NETA will also be available for domestic supplies of goods where the goods are used by the buyer to manufacture its product subject to the tax on which it pays NETA. The new exemption will ensure that in case both the raw material and the finished product are products subject to NETA, the product tax liability will arise on the raw material, thereby reducing the cost of production.
It is important to note that the new exemption also requires the seller to submit a declaration in advance and to provide credible evidence that the conditions are fulfilled. (The new government decree sets a uniform time limit of 366 days from the date of the previous declaration for subsequent verification.)
Retail tax
The government decree clarifies that tax subjects whose business year does not coincide with the calendar year must pay the increased retail tax and the advance payment on the special tax for the tax year starting in 2023 if their tax year starts on or after 1 July 2022. In other words, if the balance sheet date of a business engaged in retail activities is 31 August, it will already be liable to pay the higher rate of the special tax for the business year from 1 September 2022 to 31 August 2023.
As a reminder, from 2023, the rate of the retail sales tax will be as follows (depending on the tax base):
-
below HUF 500 million: 0% (unchanged),
-
between HUF 500 million and HUF 30 billion: 0.15% (previously 0.10%),
-
between HUF 30 and 100 billion: 1.00% (previously 0.40%),
-
over HUF 100 billion: 4.10% (previously 2.70%).
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If you need further information in connection with the above changes or would like to know how the supplementary taxes will affect your company’s operations, Grant Thornton’s tax experts are at your disposal to assist you and your company.
This newsletter is based on the information available at the date of its publication and is written for general information purposes only; therefore, it does not constitute or replace personalised tax advice in any respect.
Please note that corporate tax return form no. 2229 for 2022 has been published on the website of the Hungarian Tax and Customs Authority (NAV). In order to comply with the reporting obligation regarding the determination of the arm’s length prices, starting this year, taxpayers must complete forms 2229-ATP-01 and 2229-ATP-KV. The ATP-01 form must be completed for the transaction in question, while the ATP-KV form must be completed for the related party information in connection with the transaction shown in the ATP-01 form.
The details of how to provide the data have been previously presented in our newsletter and emails, but at this time we would like to once again highlight the following from the instructions for the form:
All corporate tax returns with a filing deadline after 31 December 2022 are subject to the reporting obligation. Annual corporate tax returns for which the filing deadline falls on or before 31 December 2022 are not subject to the reporting obligation, even if the taxpayer submits a tax return after the statutory deadline.
If you have any further questions in connection with the above, the transfer pricing team of Grant Thornton is pleased to be at your service!
This newsletter is based on the information available at the date of its publication and is written for general information purposes only; therefore, it does not constitute or replace personalised tax advice in any respect.
A few days ago, the journal “Szakma” (Profession) published further details on the changes in the field of transfer pricing, in an unusual move, by the Ministry of Finance, but before the final legislation was promulgated.
The tax authority expects mandatory reporting on arm’s length prices in a uniform way, on the basis of a predetermined nomenclature, so in dubious cases it will be worth acting with much circumspection and care. Data must be reported on all transactions that are not exempted from the disclosure obligation, regardless of whether a written contract has been drawn up for the transaction.
It has been confirmed that the threshold for the documentation requirement will be increased from HUF 50 million to HUF 100 million; further, to ensure the enforceability of the increased fines, the possibility to offset similar transactions of opposite direction will end, and the documentations to be drawn up will be the same as the number of transactions that can be identified in the year under review. Finally, it has been clarified to what extent the taxpayer’s financial data for a given transaction should be linked to the data of the annual accounts.
The content of the data disclosure obligation is briefly described below:
-
certain transactions exceeding the threshold but exempted from documentation requirements should be reported in a limited manner, but the data on transactions covered by advance pricing agreements (APA) must be reported fully;
-
group corporate tax subjects must disclose data fully on their transactions with their non-participating but affiliated enterprises;
-
each controlled (related) transaction will have to be classified into one of the 53 categories defined by the authority, and the most representative TEÁOR (business activity) code for that transaction must be provided;
-
the name, tax number or registration number, as well as the tax residence of each affiliated enterprise must be provided;
-
the net consideration actually accounted for in the current year must be reported for each affiliated partner, in HUF, and it will be also necessary to provide data on the following:
1 – the amount of positive or negative changes to the corporate tax base relating to the adjustment of the arm’s length price for the current year; and
2 – the method used for determining the arm’s length price;
-
the accounting standard applied by the tested party must be provided,
-
the arm’s length range determined in the course of the analysis and the rate actually achieved or applied by the tested party must be described in detail as follows:
1 – the profitability indicator used in case of the resale prices method, the cost plus method, and the transactional net margin method;
2 – the percentage value of the royalty or the service fee in case of the comparative prices method or when valuable rights and services are used;
3 – in the case of loans and other financial transactions, the total interest rate or the value of the reference interest and interest premium; and
4 – the price used in cases where a unit price is used as an arm’s length price.
In connection with the mandatory data disclosure, it was also emphasised that comparison with the control data available to the tax authority is expected to increase the selection of taxpayers for audits in the future, and therefore, we would like to draw your attention once again to the related deadlines and the importance of preparation.
As announced in issues of Magyar Közlöny (Hungarian Gazette) published at the end of summer and the beginning of autumn, on 9 August and 26 September, taxpayers now also have the option to pay their corporate income tax, their local business tax advance, as well as the local business tax itself in American dollars (USD) or euros (EUR). But for which taxpayers is this option open? Could this be advantageous for a company that keeps its books in HUF? Are there any prior conditions attached? Our present newsletter will explore these questions.
In case of both corporate income tax and local business tax, the common rule is that switching to USD or EUR as the currency of the tax is independent of what currency the taxpayer concerned is keeping its books in. Therefore, it may be a good option not only for those keeping their books these two currencies, but also for companies that, for example, generate the majority of their revenues in USD or EUR, or that have large transactions in these currencies.
The possibility to pay corporate income tax or local business tax in USD or EUR is therefore open to all Hungarian taxpayers that are required to pay these taxes unless the payment is subject to enforcement proceedings by the tax authorities and must be paid into a separate account in the course of such proceedings.
For both tax types, the choice is left to the business concerned: it is possible to pay one of both of these taxes in a foreign currency, and, of course, it is also possible for a taxpayer not to opt for payment in foreign currency for either tax.
However, the rules differ slightly for the two taxes, and so in the following we will set out the most important pieces of information separately.
Corporate income tax
In the case of corporate income tax, a prior condition for paying the tax in USD or EUR is that taxpayers must notify the National Tax and Customs Administration (NAV) of their choice by the first day of the month preceding the first day of the tax year (i.e., by 1 December of the year preceding the tax year for “calendar-year taxpayers”, whose business year coincides with the calendar year), using form T201.
This notification can be first made for the tax year starting after 30 September 2022 (for calendar-year taxpayers, this option is open until 1 December 2022 for the tax year 2023). This is a forfeiting time limit: no excuses submitted for missing the above deadline are accepted. Interestingly, however, there is an option for taxpayers to change their decision to pay corporation tax in foreign currency by the last day of the tax year (i.e., 31 December for calendar-year taxpayers), but this is also a forfeiting time limit.
The advance corporation income tax, as well as the corporate income tax liability assessed and declared on the returns for the tax year concerned must be paid in the currency according to the notification; conversion costs for transfers from an account in a different currency are to be borne by the company concerned.
Therefore (for calendar-year taxpayers), the first corporate income tax advances for 2023 may be paid in USD or EUR, but the corporate tax liability for the 2022 tax year, which is due by 31 May 2023, must still be paid in HUF, regardless of whether a notification for a different currency was filed.
It is also important to note that, although after such a notification the tax will have to be paid in USD or EUR into an account in the relevant currency, the tax itself will continue to be assessed in HUF. Thus, the exchange rate at which the amount of the tax in HUF is converted into USD or EUR is of particular importance.
Under the relevant provision of law, Government Decree 298/2022 (VIII. 9), the amount of USD or EUR transferred is credited to the tax account of the company concerned in the HUF amount calculated on the day when the bank account concerned is debited, using the exchange rate published by the Central Bank of Hungary (MNB) for that day (or, in the absence of such a rate, in the case of a bank holiday, at the last published exchange rate).
However, the date of payment of the tax is not necessarily the date taken into account in determining the exchange rate, but the date on which the payment is credited to the foreign currency tax payment account held by the Hungarian State Treasury for this purpose.
Local business tax
Unlike in case of corporate income tax, the relevant provision of law, Government Decree 366/2022. (IX. 26.) does not make the payment of local business tax in foreign currency subject to prior notification. However, the Government Decree stipulates that taxpayers may first pay their local business tax advances and local business tax due from 1 January 2023 in USD or EUR. In the case of local business tax, the advance payment in March can therefore already be made in USD or EUR, if the company so chooses.
With the exception of taxpayers belonging to a special economic zone, the local business tax is not paid into a central bank account linked to NAV, but into an account opened for receiving payments in USD or EUR by the Hungarian State Treasury for the relevant municipality that has introduced the local business tax.
Therefore, for this tax, the exchange rate is not established on the date of debiting the bank account concerned by the transfer, but on the date when the amount is received by National Bank of Hungary, as the bank managing the account of the Hungarian State Treasury.
In accordance with the above, the local business tax payable in USD or EUR should not be transferred to the bank account of the local government concerned for the local business tax in HUF. Therefore, if a local government has not yet published the number of this “foreign currency” bank account for local business tax, it is necessary to inquire with them.
Once again, however, a common feature of the two taxes is that the payment of a tax in USD or EUR, which is essentially assessed in HUF, gives rise to exchange rate differences (with an impact on pre-tax profit) even for businesses that keep their books in the same currency. Before making this choice, it is always worthwhile to calculate the impact of paying the tax in USD or EUR on the company’s profits, as this can lead to significant savings, especially for businesses that earn their revenues mainly in USD or EUR and have so far typically had to exchange money before transferring their taxes.
***
Should you have any further questions in connection with the above, the tax experts of Grant Thornton Hungary are at your and your company’s disposal.
This newsletter is based on the information available at the date of its publication and is written for general information purposes only; therefore, it does not constitute or replace personalised tax advice in any respect.
The scope of subjects of the innovation contribution has been expanded with the permanent establishments and branches – the deadline is approaching
With a change in the law that entered into force at the end of August, the Hungarian branches of foreign-based companies and their permanent establishments according to the Hungarian Act on Local Taxes also came under the scope of the innovation contribution. In addition, the affected taxpayers must calculate and declare their innovation contribution advance payment by 20th October, until this deadline they also must pay the advance for 2022. In this newsletter, we cover the most important details of the amendments.
Permanent establishment, branch
Foreign-based companies that conduct their business in Hungary are not always obliged to establish a branch office or a company in Hungary, however, from a tax point of view, they may have a permanent establishment (according to value added tax and / or corporate income tax and / or local business tax), which must always be examined and established according to the law of the tax type concerned.
The legal change currently being discussed affects the permanent establishment according to Hungarian Act C of 1990 on local taxes (hereinafter: “Local Tax Act”), which – based on the relevant definition – should be understood as a permanent business establishment (property) where the relevant foreign-based taxpayer – regardless of the legal title of use – is partially or fully engaged in business activities. Thus, in particular (but not limited to) the factory, the plant, the workshop, the warehouse, the mine, the oil or natural gas well, the water well, the wind power plant (wind-wheel), the solar power plant, the office, the branch, the representative office, the agricultural land, the utilized (rented or leased) real estate, the public road or railway track that can be used in return for compensation. And, among other things, in the case of the pursuit of construction industry activity exceeding 180 days, the area of jurisdiction of the municipality where the taxpayer carries out a such activity should be included here.
In the case of domestic companies, a branch office is a place that is located in a different settlement from the company’s headquarters, but in the case of foreign companies, the branch office in Hungary is considered the headquarters of the foreign enterprise, and as such is registered in the Hungarian company register as an independent company form as a branch office of the foreign company. Such a branch is an organizational unit of the foreign enterprise, which does not have an independent legal personality, but does have a certain degree of economic independence.
The rules of the innovation contribution
The innovation contribution base is the same as the general local business tax base not reduced by tax allowances. The rate of the contribution is uniformly 0.3% throughout Hungary.
As a general rule, the annual innovation contribution obligation must be declared in the corporate income tax return by the deadline for submitting this return (this is 31 May of the following year in the case of calendar year taxpayers, in other cases the last day of the 5th month following the tax year), which is also the date of payment of the annual tax obligation, or the deadline for reclaiming any overpayment.
The changes, which were accepted this summer
In the past, only domestically-based companies subject to the accounting law were obliged to pay the innovation contribution. According to the law published on 27 July 2022, this was supplemented by the permanent establishment of the foreign-based company according to the Local Tax Act and the Hungarian branch of the foreign-based company.
In the case of taxpayers newly included in the regulation, the period for the advance determination for the 2022 tax year lasts from the 31st day after the announcement (i.e. 27th August 2022) until the end of the 2022 tax year.
The deadline for determination, declaration, and payment is 20th October 2022 (which also coincides with the deadline for the VAT return for the Q3 period / September).
The innovation contribution advance for Q1 and Q2 periods of the 2023 tax year must also be established and declared by 20th October, but the deadline for payment will be the 20th day of the month following Q1 and Q2 period of the 2023 tax year. The amount of contribution advances for Q1 and Q2 periods of 2023 is 25% of the innovation contribution calculated for the entire 2022 tax year.
The permanent establishment and branch included in the regulation during the tax year must determine its contribution obligation for the 2022 tax year – at its own choice – using one of the following methods:
-
with the amount of the total contribution obligation calculated for the year 2022, calculated in proportion to the days of contribution obligation, OR
-
by deducting the fractional contribution obligation calculated on the basis of the (accounting) closing prepared the day before the beginning of the contribution obligation (26 August) from the calculated contribution obligation for the entire year.
As you can see from the above, the deadline is approaching, so it is recommended to start performing the relevant calculations as soon as possible. If you have any further questions or would like to ask for professional help in calculating the contribution advance, the tax experts of Grant Thornton Hungary are at your, and your company’s disposal.
This newsletter was written based on the information available up to the date of its publication and for general information purposes only, so it does not in any way qualify as personalized tax advice and does not replace it.