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Articles by: Grant Thornton Hungary

What is HR doing in an NIS2 project?

Why is it that in some companies leaders and managers in the field of HR are the ones taking the first steps to involve external experts in the preparation for NIS2 (Network and Information Security V2)? The answer is inherent in the fact that HR may actually have a lot to offer in this maze of information security. In the following, we will attempt to answer this question based on the experiences of our NIS2 mentoring service so far.

Information security is not an internal matter (only) for IT

The NIS2 (Network and Information Security V2) Directive is about protecting both infrastructure and information.

Make no mistake: in spite of the fact that in the transposition of the EU directive into Hungarian law, the title of the Act transposing the NIS2 directive uses only the word “cybersecurity,” ultimately NIS2 is still about information security also in Hungary.

Cybersecurity is the “art” of countering attacks from cyberspace, while information security is a highly regulated, conscious and professional set of procedures for controlling and storing data in the possession of a company. Cybersecurity is a very important part of this, but it is only a slice of information security.

Information security neither starts nor ends with IT. The latter is, of course, a very important component, but at the moment humans are still at the heart of information security. Even with the best intentions, people are still considered among the weakest points in the line of defence.

Those “socialised” on GDPR rules

If one had to name a piece of legislation specifically designed to protect information in the European Union, GDPR would be the first thing that would come to mind almost without exception. No wonder, as every company that handles personal data, such as keeping records on employees or individual customers, has had to familiarise itself with the General Data Protection Regulation, since 25 May 2018.

Because personal and sensitive data are typically significantly overrepresented in HR processes and tools compared to other business processes, the GDPR has had a significant impact on the daily operations of HR departments for years.

Most HR departments are already familiar with the requirements of GDPR, and have incorporated them into the day-to-day operations of the company.

Even though NIS2 is not the new GDPR, it is no wonder that with the experience of GDPR, some HR teams are the first to understand and recognise the importance of the new requirements related to information protection and the first to become curious about the challenges of complying with them.

Thinking organisationally

Companies can only understand and translate the NIS2 requirements to their own situation if they treat it as an information security management system that transcends organisational units. It is very difficult,  and in many cases even impossible, to delegate information security measures and their operation to a single department.

Often, a modern and well-functioning HR team will have a higher level of organizational thinking and a greater need to break down organizational silos than a traditional IT department.

From this point of view, it may seem quite logical and justified that in many cases the HR teams take the initiative in understanding the NIS2 requirements more precisely.

However, this does not mean that HR colleagues feel ready to take on NIS2 challenges on their own, equipped with the necessary knowledge and experience. Instead, they prefer to assume a coordinating role between IT, internal business process owners and a possible external consulting partner.

And then there are the trainings

It cannot be stressed enough that although NIS2 is a fundamentally technological set of requirements, the human side of information security should not be overlooked either.

Even with the most carefully designed processes and software, developed to near perfection, mistakes made by staff or managers pose a huge threat to information security, and this is unlikely to change in the future.

One of the chapters of the NIS2 requirements specifically addresses training and the need to continuously improve security awareness in companies, both at individual and organisational level. The continuous and effective training of colleagues in this area, and especially the organisation of “cyber hygiene” exercises, should be the responsibility of HR, which is often best placed to deliver effective and efficient training in a company.

We are not claiming that a dedicated HR team is the ideal player to coordinate NIS2 preparation for every company, but it is almost certain that a proactive and prepared HR department can do much to ensure that the complex requirements of NIS2 have the least negative impact on the existing organisational culture.

2024 summer changes in tax rules published

Three government decrees have been promulgated in issue no. 74 of the official gazette Magyar Közlöny, published on 8 July 2024, introducing changes and new tax obligations regarding the rules of taxation, the social contribution tax and excess profit taxes. In this article, we summarise the main rules introduced by the three decrees and provide help with their interpretation.

Changes to the rules of taxation

From 1 August 2024, the maximum amount of the default penalty for a number of defaults will increase significantly:

  • in general, natural persons will be subject to a default penalty of up to HUF 400,000 instead of HUF 200,000, and non-natural persons up to HUF 1 million instead of the earlier HUF 500,000;
  • taxpayers who employ(ed) unregistered employees will be subject to a default penalty of up to HUF 2 million instead of HUF 1 million;
  • taxpayers may also be subject to a default penalty of up to HUF 2 million instead of HUF 1 million in case of
    • failing to issue an invoice, simplified invoice or receipt, or the invoice, simplified invoice or receipt issued is not for the actual consideration, or
    • failing to fulfil their obligation to retain records.

Changes concerning social contribution tax

The possibility of claiming the social contribution tax allowance for employees newly entering the labour market will be reduced for employment relationships established after 1 August 2024:

For the purposes of the social contribution tax allowance, only such citizens of Hungary and non-EEA countries bordering Hungary can be considered as employees newly entering the labour market who worked for a maximum of 92 days in an employment relationship, or as sole traders or members of a company, with an insurance obligation under the Social Insurance Contribution Act, within the 365 days (previously only 275 days) before the month in which their employment started.

The period for which the social contribution tax allowance is valid will be significantly shortened:

  • instead of the first two years, only the first year of employment will be eligible for a tax allowance up to 13% of the gross salary, but not more than 13% of the minimum wage;
  • instead of the third year of employment, only 50% of 13% of the minimum wage may be claimed as a tax allowance in the 6 months following the first year of employment.

Changes concerning the special tax on credit institutions and financial undertakings

The new rules partly clarify and partly limit the way in which credit institutions and financial undertakings can reduce their special tax payable until 10 December 2024 in case the average daily stock of government securities held by them increases in relation to the average daily stock of government securities they held between 1 January 2023 and 30 April 2023 and between 1 January and 30 November 2024.

The special tax rate of 13% on the part of the tax base not exceeding HUF 20 billion and 30% on the part exceeding this limit remains unchanged. The tax base is also unchanged: the pre-tax profit determined on the basis of the annual accounts for the tax year 2022,

minus the following amounts accounted for the tax year 2022:

  • dividends received;
  • profits from the supply of goods or services not in the ordinary course of business;

plus the amount recognised as expenses in the tax year 2022:

  • special tax on financial institutions;
  • financial transaction tax;
  • special tax on credit institutions and financial undertakings.

It has been clarified that the nominal value (rather than the cost value, daily market value, etc.) of government securities is to be taken into account for the calculation of the daily average stock of government securities.

Further restrictions have been introduced in terms of the ways of acquisition of government securities that cannot be taken into account when calculating the item reducing the special tax. In addition to the existing repurchase and buy-sell-back transactions, the list of exceptions has been extended to include securities lending transactions and securities financing transactions.

The special tax for credit institutions and financial undertakings for 2024 may be reduced by 10% of the increase in the nominal value of the portfolio of government securities, up to a maximum of 50% of the amount of tax payable for the tax year, calculated without taking this reduction into account.

Changes affecting the special tax on the producer of petroleum products (MOL)

As of 1 August 2024, MOL’s special tax liability on the amount of crude oil purchased from the Russian Federation in the current month, measured in barrels, will increase by the HUF equivalent of USD 2.5, as the reduction applied in calculating the world oil price difference will be changed from USD 7.5 to USD 5.

Changes concerning the financial transaction tax

As of 1 August 2024, the base for the financial transaction tax pursuant to Act CXVI of 2012 on the Financial Transaction Tax (FTT Act) will be reduced in two cases:

  • in the case of cash payments initiated through an institution operating a Postal Settlement Centre, the part of the amount paid in excess of HUF 50,000 (currently HUF 20,000);
  • in the case of a transfer from a payment account of a private individual (except from the account of a sole trader), the part of the amount paid in excess of HUF 50,000 per transfer (currently HUF 20,000).

From 1 August 2024, the financial transaction tax rate will increase:

  • As a general rule, the tax rate will increase from 0.3% to 0.45% and the maximum amount per transaction will increase from HUF 10,000 to HUF 20,000.
  • The tax rate will increase from 0.6% to 0.9% for cash withdrawals from a payment account and cash withdrawals by means of a cash substitute payment instrument.

Rules concerning the securities transaction tax from 1 August 2024:

  • The tax for investment service providers will increase from 0.3% to 0.45%, with the maximum amount per purchase also increasing from HUF 10,000 to HUF 20,000.
  • The purchase of financial instruments for the benefit of a private individual (except in the capacity of a sole proprietor) with a value not exceeding HUF 50,000 per purchase (currently HUF 20,000) will be exempt from the securities transaction tax.

Supplementary financial transaction tax

Supplementary financial transaction tax rules will be introduced from 1 October 2024 for the following entities:

  • payment service providers having their seat or a branch in Hungary, financial institutions providing credit and money lending services that are not payment service providers, credit institutions authorised to carry out money exchange activities, and prime intermediaries authorised to act as money exchange intermediaries;
  • entities having a foreign seat or branch and providing payment service, credit and money lending, money exchange and money exchange intermediation activities in Hungary as a cross-border service;
  • investment firms and credit institutions authorised to provide investment services in Hungary;
  • foreign entities established or having a branch providing investment service activities in Hungary as a cross-border service.

The new rules do not apply to the Central Bank of Hungary (MNB).

The supplementary financial transaction tax is payable on the following transactions involving conversion between different currencies:

a) payment transactions under Section 3(1) to (3) of the Financial Transaction Tax Act (FTT Act), as well as payment transactions under Section 3(4), point a) of the FTT Act and – with the exception of payment transactions effected by a payment service provider on a payment account held for another domestic or foreign credit institution or for a central contracting party – payment transactions under Section 3(4), point e) of the FTT Act;

b) the purchase of financial instruments pursuant to Section 8/A (1) of the FTT Act;

c) transactions executed by investment service providers for the exchange of securities for the benefit of clients and – with the exception of credit institutions – for the benefit of other domestic or foreign payment service providers, financial institutions, investment firms, investment fund managers and investment funds.

Where an obligation to pay supplementary financial transaction tax would arise in respect of more than one transaction, the obligation is to be satisfied only on the basis of point c) above. The liability to pay the supplementary financial transaction tax arises, in case of points a) and b) on the date of performance of the transaction, and in the case of point c) on the value date of the spot transaction where the exchange transaction consists of one spot and one forward transaction, and on the value date of the first forward transaction where the exchange transaction consists of several forward transactions. For the conversion into Hungarian forint, the official exchange rate published by the MNB for the given date is to be used.

No supplementary financial transaction tax is due for the following:

  • a payments initiated by the payer through the payee; and
  • transactions within the meaning of Section 3 (4) of the FTT Act.

The basis for the supplementary financial transaction tax is:

  • as a general rule, the taxable amount pursuant to Section 6(1), points a) to g), as well as point i) of the FTT Act;
  • in the case of the purchase of a financial instrument, the taxable amount pursuant to Section 8/A (2) of the FTT Act;
  • in the case of an exchange transaction, the amount to which the order for the exchange transaction relates.

The rate of the supplementary financial transaction tax is 0.45%, but not more than HUF 20,000 per payment transaction.

The supplementary financial transaction tax is to be assessed, declared and paid in the same way as the financial transaction tax.

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This summary 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.

Corporate income tax reduction opportunities still available

The deadline for calendar year corporate tax (CIT) returns is fast approaching, 31 May 2024. In view of the approaching deadline, we have collected in this newsletter a number of CIT reduction options that businesses can choose to apply after the tax year, but before the adoption of their accounts, and which would allow them to use a larger share of their profits to finance new investments or operating costs.

1. Development reserve

Development reserves can be created in the tax year up to the amount of the pre-tax profit, in the form of a transfer from the profit and loss reserve to a committed reserve. A condition of taking the tax base reducing item into consideration is that the tied-up reserve must exist also on the last day of the tax year, and it may only be released in case of the realization of certain investments in the next four tax years. When making a decision on the above, it is important to be aware that the development reserve is not a tax allowance, as it only results in a deferred corporate income tax payment obligation; however, it may serve as the source of a significant amount of interest-free funds for the company to realise its planned investments.

2. Tax allowance for SMEs

If the taxpayer qualifies as a small or medium-sized enterprise on the last day of the tax year in which it takes out a loan from a financial institution for the acquisition or production of a fixed asset, the amount of the interests accrued may be deducted from the tax due until the year prescribed in the original loan agreement for the repayment of the loan or until the fixed assets are still on the books of the taxpayer. This tax allowance may be applied up to 70% of the tax due; furthermore, since this is considered as aid, additional limits should also be taken into consideration, depending on the nature of the investment.

3. Tax base reduction for investments in case of SMEs

Taxpayers that qualify as small or medium-sized enterprises may reduce their tax base by a maximum amount equalling to their pre-tax profits in connection with the following types of investments:

  • the value of immovable property for which no occupancy permit was previously issued;
  • the value investments incurred in the interest of commissioning fixed assets in the category of technological equipment, machinery and vehicles that were not previously taken into use;
  • the cost price of renovations, extensions, change of purpose or conversions increasing the cost value of immovable properties;
  • in the category of intangible assets, the cost price of licenses to software products, intellectual property entered in the books in the tax year and not previously taken into use.

This possible tax base reduction is also considered as de minimis aid, and therefore, additional limits should also be taken into consideration, depending on the nature of the investment.

4. Applying depreciation write-off

While the cost of depreciation write-off according to the Accounting Act and the book value of derecognized assets increase the pre-tax profit, the value of the depreciation write-off recognised by law and the calculated book value of the derecognised assets reduce it. The Accounting Act determines the depreciation write-off of assets on the basis of the useful life of the assets and their expected residual value. By contrast, the Corporate Income Tax Act provides for a pre-fixed linear depreciation for a number of assets and, in some cases, it also provides for an option to choose a higher depreciation rate than the rate according to the main rule.

On the basis of the latter choice, a company may choose a depreciation rate according to the Corporate Income Tax Act that is higher than the depreciation rate chosen under the Accounting Act. Thus, in the initial years of the asset’s useful life, the company may reduce its corporate income tax, since the depreciation write-off established according to the Corporate Income Tax Act law constitutes a tax base reducing item.

5. Tax allowance available in connection with employees

When making the tax calculations, it is also worth considering allowances related to employees.

  • Tax allowance for employing workers reduced capacity to work

The corporate income tax base may be reduced by the amount of the monthly salary paid to workers with a reduced capacity to work, up the amount of the minimum wage in effect on the first day of the tax year. The condition of the above that the average statistical headcount of the company is not more than 20 persons.

  • Tax allowance related to vocational training

The pre-tax profit may be reduced by 24% of the minimum wage for each full or fraction of a month and for each student involved in dual vocational education and training in the framework of a vocational training contract.

  • Tax base reducing items related to special groups of employees

The corporate income tax base may be reduced by the social contribution tax paid with respect to such vocational students mentioned in the previous section who have successfully passed their vocational examinations and the company continued to employ them; persons who were previously unemployed; as well as former inmates who were employed within 6 months of being released and those on parole, for the duration of their employment or a maximum of 12 months.

6. Tax base reduction in case of for research and development activities carried out by affiliated undertakings

If a subject of the corporate income tax does not use the full amount of the tax allowance available in connection with research and development activities, then the remaining amount may also be used by its affiliated enterprise as a tax base reducing item. Therefore, it may be worth for affiliated companies to use this transferable option.

Such transfer is subject to the following conditions:

  • the research development activity must be linked to the revenue generating activities of both affiliated undertakings;
  • the company using the remaining amount of the tax allowance must, by the deadline for filing the tax return, possess a written declaration given by the affiliated enterprise with the required data content.

The above possibilities may, on the one hand, reduce the amount of the corporate income tax for 2023, resulting in a lower amount of tax difference to be paid by 30 May, if the actual amount of the tax is higher than the advances paid during the year; on the one hand, if the tax difference was higher than the actual amount of the tax, the difference may be claimed back. Furthermore, it is also significant advantage that by reducing the amount of the corporate income tax for 2023, the amount of the tax advance to be paid for the second half of 2024 and the first half of 2025 would also be lower, thereby improving the company’s liquidity position. Therefore it is worth considering the above possibilities for all businesses, even before making the calculation for the tax year. As can be seen from the above list, these options for tax and tax base reduction are quite varied and complex, and familiarity with the related strict procedures and conditions is indispensable in order to avoid tax risks.

Record number of mid-market businesses expect increase in profitability

Profitability increases as investment in technology reaches new highs

The resilience of the global economy has been highlighted by a record number of mid-market business leaders expecting an increase in profitability (up two points to 62%) over the next 12 months, with 53% expecting to increase their selling prices (up three points), according to Grant Thornton’s latest International Business Report (IBR).

This bullish outlook saw optimism rise one point to 66%, despite forecasts indicating global GDP growth will remain below historic averages. The uncertainty created by a record number of people voting in national elections this year along with the ongoing challenges posed by above target inflation and higher interest rates, are thought to be weighing on growth forecasts.

Why then are mid-market business leaders so bullish about the prospects for their businesses? It could be driven by the record number of respondents expecting to increase their investment in information technology (up five points to 66%), and a record number of respondents expecting to increase investment in research and development (up three points to 55%).

With both selling prices and profitability expected to rise – absorbing any long-tail inflationary pressures – and optimism remaining high, businesses clearly have the confidence to invest.

With all the hype around AI and its potential impact on business, it is little surprise that business leaders are opting to invest in this potentially transformative area.  However, this is not likely to lead to mass job cuts. A record number of respondents also expect to increase investment in their people (up two points to 58%). This would suggest that investment in technology sits alongside investment in talent and that a combination of both is needed to deliver sustainable growth.

Despite a gloomy geo-political outlook, businesses are also more hopeful about their own international prospects. A record number of respondents expect an increase in revenue from non-domestic markets over the next 12 months (up three points to 45%). Those expecting exports to increase is also up four points to 47% and those expecting to increase the number of countries they sell to is up two points to 42%.

Business constraints

There is, however, no getting away from the gloomy geo-political situation. Economic uncertainty remains the largest constraint cited by business leaders (down one point to 56%). Those citing the availability of skilled workers is up three points to 53% and concerns over labour costs is up two points to 53% – highlighting the challenge posed by persistent or sticky inflation as it has been labelled.

Pressure from energy costs appears to be easing, with those citing it as a constraint down one point to 51%.

Businesses may not be investing in technology solely for productivity reasons. With 50% of business leaders citing cybersecurity as a constraint, it may also be a defensive investment as cyber-attacks become more frequent and sophisticated.

Surprisingly, shortage of finance is the least cited concern for business leaders, remaining static at 40%. This may be explained by more businesses holding excess cash on their balance sheet according to research by the Harvard Business Review, which acts as a form of insurance against adverse events.

Peter Bodin, CEO of Grant Thornton International commented: “Our latest IBR findings highlight the continuing resilience of the global economy and of the global mid-market. It’s clear that, with improving profitability, CEOs are targeting investment in innovation, whether through R&D or technology, to win market share in a flat global economy. The pressure is clearly on business leaders to make the right investment choices to make sure they are not left behind by competitors – or their customers. Relying on what has always worked in the past may no longer be good enough if AI delivers the transformation some predict it will.

“With a global surplus of alternative financing and record-high cash reserves, our data highlights that concerns regarding finance shortages have also waned. The value of maintaining cash reserves to navigate unpredictable market conditions could now be put to the test.

”Despite the ongoing uncertainty created by geopolitical tensions and a record number of national elections, businesses simply cannot afford to do nothing. Those business leaders prioritising strategic investment and operational resilience to optimise their operations will be best positioned for success.”

What is Double Materiality in ESG?

A definition and overview of double materiality in sustainability and ESG

The Hungarian Sustainability Act passed in December and the EU CSRD Directive require large companies to carry out a double materiality assessment covering their entire operations, but what does this mean?

Why is double materiality assessment key?

The double materiality assessment plays a crucial role in optimising the allocation of resources to achieve CSRD compliance, while providing invaluable insights to shape the overall strategy of the company:

  1. It helps identify significant business opportunities, risks, trends and brand characteristics.
  2. It helps you decide which ESG issues and initiatives your company should prioritise.
  3. It provides a clear framework for management decision-making and resource allocation.
  4. It helps to make the sustainability and ESG strategy more structured and rigorous by introducing a standard framework and methodology for assessing and prioritising materiality issues.
  5. It can help improve collaboration between different departments and areas of the company, including corporate communications, investor relations, corporate social responsibility (CSR), sustainability and human resources (HR).
  6. By clarifying what the organisation should disclose in its sustainability report, a good materiality assessment will save the organisation a lot of unnecessary work while highlighting important risks and opportunities.

Definition of double materiality

Double materiality is defined as the union of impact materiality and financial materiality. A sustainability or ESG matter has double materiality if it is material from either an impact from environmental/social/governance perspective, or from a financial perspective, or both.

Financial materiality

The set of ESG risks and opportunities that are financially material, i.e. that could have a positive or negative impact on the financial performance, cash flows and financing position of the reporting entity.

  • Impact on financial performance – The primary criteria for assessing financial materiality is evaluating how an ESG factor affects a company’s financial health. Factors that can impact cash flow, revenue growth, profitability, and overall financial stability are considered to be financially material.
  • Investor relevance – Factors that investors consider important in their decision-making process are often regarded as financially material. Investors place substantial emphasis on sustainability factors that can influence the risk-return profile of their investments.
  • Industry relevance – The sector-specific nature of materiality assessments is vital. What may be financially material for one industry may not hold the same significance for another. Therefore, companies must consider industry-specific standards and benchmarks when assessing materiality.
  • Regulatory environment – Companies must take into account relevant regulations and reporting requirements in their assessment. Compliance with these regulations ensures that financial materiality assessments align with legal expectations.

Impact materiality

According to the ISSB and ESRS standards, an event or matter has impact materiality if it has an actual or very likely significant impact on the environment and/or society in the short, medium or long term. For example, if everyone who drives a car stops using fossil fuels and switches to electric vehicles (EVs), this will have a significant environmental and social impact, both at the societal level and for individual companies in the automotive and fuel value chain.

For companies, an issue has a material impact if it is directly caused by the company’s own operations, products or services, or if it is an impact that is linked to the upstream and downstream value chain of the company.

For example, if a company’s product is manufactured with a deliberate breach of health and safety standards somewhere in the supply chain, this poses a material risk to the company, even if the company itself may not have knowingly caused or directly contributed to the negative impact.

Similarly, if a company decides to invest in renewable energy, it is likely to face a double materiality consideration. A company may see an increase in short-term costs associated with CAPEX associated with clean energy, but may also achieve long-term financial benefits such as lower, more predictable energy costs, improved energy security and a better reputation, something

Examples of double materiality in different business sectors

Double materiality can be observed in many different industries and sectors when companies make strategic decisions or risk assessments that take into account both financial and environmental impacts.

For example, in the consumer goods industry, a company may decide to adopt sustainable sourcing practices for the raw materials used in its products. This decision has an environmental impact by reducing the company’s use of natural resources, and is likely to have financial impacts in areas such as material costs, customer loyalty and brand reputation.

Another example of double materiality in the financial services sector is how banks are reviewing their lending practices and loan portfolios to ensure that they are not indirectly financing activities that are harmful to the environment. These decisions can have positive environmental impacts (such as divesting from fossil fuel investments), but can also affect the bank’s financial performance and credit risk.

Most companies apply and implement double materiality in their business in a variety of ways. From a financial perspective, investing in the health and wellbeing of employees helps reduce absenteeism and healthcare costs, which improves employee productivity and engagement. In addition, by promoting healthier lifestyles, an organisation can position itself as a better employer and attract and retain talent.

Double materiality in practice

Each organisation’s double materiality approach must be unique to its organisational context. However, there are some general best practices that organisations should consider when embarking on materiality assessment and strategic decision-making:

  • Set up a stakeholder working group: stakeholders should be involved in the selection of relevant ESG factors. This team should consist of internal management, key staff and employees, as well as external stakeholders.
  • Devote time to materiality assessment: the purpose of a materiality assessment is to determine which environmental and social issues are most important and have the greatest impact on the business and its stakeholders. This has a direct influence on the content of the CSRD report and the resources required to produce it.
  • Gather feedback from stakeholders: the organisation should design and share an ESG materiality assessment that allows stakeholders to rate each factor based on perceived impact, relevance and importance.
  • Carry out a materiality assessment: the assessment provides a numerical/visual picture, can help the business to better understand the double materiality aspects, determine which issues to focus on and decide how to allocate resources to address them.
  • Use a double materiality framework: the most common of these are the ISSB, GRI and the ESRS standards of the EU Corporate Sustainability Reporting Directive (CSRD ).
  • Use long-term scenarios and forecasts: when making strategic decisions that take into account double materiality, business leaders should assess the long-term consequences of strategic decisions and business practices and try to predict how they will affect the company’s financial and environmental performance.
  • Plan and document the process for assessing materiality: many sustainability reporting standards, such as ESRS, require reporting organisations to disclose how they assess double materiality. Whether this materiality process includes surveys, stakeholder interviews, scenario planning or other inputs, double materiality should be defined, planned, socialized, timed and budgeted in the context of the organization’s sustainability reporting requirements.

Materiality assessment project

When we work with an organisation on a materiality assessment, we usually start with an industry and competitor survey to understand what competitors are focusing on in terms of ESG and sustainability. We then gather internal and external data and feedback to create a structured map of which ESG issues are most important to the organisation. Finally, we synthesise and organise these themes and stakeholder responses into a materiality matrix, strategic plan and recommendations that the brand, management and employees can own, adopt and support.

Whether your organisation already has an established ESG or sustainability strategy and materiality assessment, or is conducting a materiality assessment for the first time, the process can be challenging and uncertain. We offer a structured, multi-phase process that helps define a clear plan, uses data-driven analysis and industry benchmarks to assess materiality relevance, and engages stakeholders across the organization.

Increase of VAT payable on the EPR fee from February

On the basis of the extended producer responsibility fee (hereinafter: EPR) data supply, MOL Hulladékgazdálkodási Zrt. (hereinafter: MOHU) issues two accounting vouchers to the companies liable to pay the EPR fee: one for the EPR fee share due to MOHU and one for the EPR fee share due to the municipality.

In connection with the EPR data supply for the third quarter of 2023, MOHU sent an accounting voucher to domestic taxable persons for the EPR fee share due to the municipality without VAT and issued an invoice for the amount due to MOHU only in which VAT at the rate of 27% was charged.

Changes in the VAT exemption of municipalities in respect of the EPR fee

However, from Q4 of 2023, MOHU will send invoices to domestic taxable persons for both the EPR fee due to the municipality and the EPR fee due to MOHU with 27% VAT.

On 21 February 2024, MOHU published the following information on its website concerning the change related to the invoicing:

“The National Tax and Customs Administration (NAV) and the Ministry of Finance (PM) have issued a joint statement informing MOHU Zrt. that the EPR fee payable by producers to MOHU MOL Hulladékgazdálkodási Zrt., but due to the municipalities is considered consideration for the supply of services for VAT purposes.

In accordance with the joint NAV-PM statement, from 1 February 2024, MOHU MOL Hullgazdálkodási Zrt. will issue its invoices to manufacturers having their registered seat or business premises subject to the EPR fee paying obligation for the part of the EPR fee due to the municipalities  with 27% VAT charged, while the invoices issued to manufacturers not having their registered office or business premises in Hungary – given that in their case, within the meaning of the VAT Act, the place of performance of the service is not Hungary – do not include VAT.”

Although the above means that domestic operators will now have to finance the full VAT on the EPR fee, for those who have the right to deduct VAT, this may only be of interest from a liquidity point of view. In fact, the invoices issued by MOHU will, in principle, allow domestic operators to deduct input VAT in their VAT returns.

The above information from MOHU also makes it clear that the invoices to companies with no permanent establishment in Hungary who are obliged to pay EPR in Hungary will be issued without charging VAT. These businesses will have to comply with their respective national rules applicable to the payment of VAT. Under the reverse charge rules, businesses established in the EU will therefore have to charge VAT themselves in accordance with their national rules and they will also be entitled to deduct the VAT they charge accordingly.

Since the joint NAV-PM statement is based on the same legal provisions that were in force in Q3 of 2023, it is possible that EPR taxpayers will soon receive corrective invoices from MOHU.

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If you have any further questions regarding the EPR or product charge provisions, or you are unsure how your company is affected by these two obligations, our tax experts are ready 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.

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