The concept of “deferred tax” may already be a familiar for Hungarian subsidiaries of foreign company groups where, in addition to preparing Hungarian accounts, a consolidated financial statement is required under the accounting rules applicable to the group.

As the Hungarian Accounting Act had not previously used the concept of deferred tax, there was a discrepancy between the Hungarian and the group accounts. This discrepancy would be mitigated by the newly submitted bill T/5877, which introduces the concept of deferred tax.

What does deferred tax mean?

A deferred tax arises when a company’s tax calculation, i.e. tax base adjustment items, has a future temporary tax effect, i.e. a tax base adjustment item in the current year reverses in the future (such as a provision made in the current year, or an impairment loss recognised on a receivable). The proposed amendment would allow companies to account for these temporary differences as deferred tax liabilities or deferred tax receivables.

A deferred tax liability arises when, although less tax is paid in the current year, it must be paid in the future, i.e. a tax liability arises (e.g., the creation of a tax reserve for the current year).

A deferred tax receivable arises when we pay more tax in the current period, which we will get back in the future, i.e. we have a receivable (e.g. impairment of a provision, receivable, loss carry-forward).

The calculation of deferred tax does not apply to tax base adjustment items that are permanent, i.e. will not be reversed in the future (e.g. fines).

The amount of deferred tax is to be calculated using the corporate tax rate at the balance sheet date.

Accounting rules for the calculation of deferred tax

In the first financial year in which deferred tax is applied, the opening book value of the deferred tax receivable and deferred tax liability should be offset against the profit and loss reserve. The amount of the deferred tax for a financial year already affects the profit for that financial year and is recognised in the profit and loss statement as a deferred tax expense.  According to the bill, the balance sheet value of the deferred tax receivable should be charged against the profit and loss reserve by transfer to the retained earnings.

Accounting treatment of deferred tax

A company may, at its option, choose to recognise deferred tax receivables and liabilities.  Deferred tax receivables are to be recognised among fixed assets and deferred tax liabilities in long-term liabilities.

The amount of the deferred tax receivables and liabilities vis-à-vis the tax authority should be shown as a netted amount, depending on whether it is a positive or negative number. Accordingly, the deferred tax receivables and deferred tax liabilities lines are added to the balance sheet structure. In the profit and loss statement, the line “Deferred tax liability” will appear after the “Tax payable” line.

In the notes to the financial statements, the significant items of deferred tax receivables and liabilities should also be presented, in a breakdown according to legal titles.

The rules of accounting of deferred tax must be applied to the financial statements for the financial year starting in 2024, but at the option of the company, they may already be applied to the financial statements for the financial years starting in 2023.