The Global Minimum Tax Act has brought about a change in the area of notified shares, which could be favourable for many taxpayers. In this newsletter, we will examine the details of the above.

The concept of notified shares

In business life, particularly since the COVID epidemic, it is common for a (domestic or foreign) company to acquire some form of shareholding in another company. There is a corporate tax base relief linked to notified shares, i.e. the notification of the shareholding thus acquired, to the Hungarian tax authority (NAV). Upon the sale (or transfer) of a notified share held for at least one year, the corporate tax base may be reduced by the capital gains realised on the sale of the share. At the same time, it is also true that the amount of any capital loss on the sale increases the corporate tax base.

However, the (favourable) rules detailed above do not apply to shares acquired in what is called a “controlled foreign company” (CFC).

Prior to 1 January 2018, the relevant legislation also included a minimum acquisition rate (10%), and to qualify for the corporate tax base relief, a shareholding of at least this extent had to be acquired. This rule has since been abolished, and even a small shareholding acquisition can now be notified to NAV.

However, the deadline for reporting is time-barred: taxpayers have 75 days from the acquisition to notify the tax authority.

Favourable change from 31 December 2023

The transitional rule included in the Global Minimum Tax Act promulgated at the end of last year is linked to this notification deadline: in derogation from the 75-day deadline, taxpayers concerned may notify to NAV any shareholding acquired before 31 December 2023 until the deadline for filing their corporate tax return for the tax year 2023. The condition for filing a notification is that the share notified must meet the definition of notified shares in the Corporate Tax Act at the time of filing (i.e. not at the time of original acquisition).

The (also time-barred) deadline for taxpayers whose business year coincides with the calendar year is therefore 31 May 2024 (Friday), to report to NAV any shareholdings that they had acquired earlier but failed to report within 75 days.

However, this extended deadline is subject to certain additional conditions:

• Firstly, 20% (one-fifth) of the difference (gain) between the market value and the book value of the newly notified shares on 31 December 2023 is added to the corporate tax base, on which the 9% corporate tax must be paid by the deadline for filing the corporate tax return for the tax year 2023.
• Taxpayers must also provide an independent auditor’s or expert’s report to substantiate the market value of the shareholding.
• A separate record must be kept in connection with the notification.

The transitional rule on notified shareholdings is most useful for corporate taxpayers who plan to sell all or part of their previously acquired shareholdings after one year and expect to realise a gain on those shares.

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If your company has a stake in another company acquired before 31 December 2023 that was not declared to the tax authorities within the 75-day time limit, if you have further questions about the definition of a declared stake, or in case you need an expert opinion on the market value of the stake, Grant Thornton’s tax experts and asset appraisers are pleased 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.