On 30 November 2023, Act LXXXIII of 2023 on the amendment of certain tax laws and Act LXXXIV of 2023 on additional taxes to ensure a global minimum tax level and amending certain tax laws in this context (hereinafter jointly: the Autumn Tax Package) were promulgated.

The Autumn Tax Package proposes to make comprehensive changes to the Hungarian tax system and introduces a number of new legal institutions. In order to provide a more detailed and comprehensive picture of the changes, the Autumn Tax Package is presented in a series of professional publications, this sixth part of which is devoted to the rules of global minimum tax. (The first part on corporate tax is available here, the second one on tax administration  here, the third on VAT here, the fourth one on personal income tax, social contribution tax and social security contribution here, and the fifth part on other taxes here.)

In accordance with the relevant European Union Directive (No. 2022/2523), one of the most significant international tax-related changes of recent years, the global minimum tax, has now been introduced into Hungarian law.

 The global minimum tax affects the largest companies

 In line with the practice of previous decades, many companies have taken advantage of loopholes in certain regulations to pay their taxes in countries where it is most financially advantageous for them to do so.

The concept of the global minimum tax was born out of the desire of individual states to prevent large international companies (typically, but not exclusively, digital technology giants such as Apple, Facebook or Google) from choosing their tax residence in such a way that their profits are taxed in countries with the lowest rates.

This is reflected in the “personal scope” of the global minimum tax: it will only apply to groups of companies with annual revenues above EUR 750 million (around HUF 285 billion) (to be calculated on the basis of the consolidated financial statements of the ultimate parent company) and will apply from tax years 2024 and 2025.

The EUR 750 million threshold must be examined for the 4 years preceding the given tax year: if a group exceeds this threshold in at least 2 years, it will be obliged to take into account the minimum tax rules when determining its tax liability.

Exemption from the global minimum tax

The law defines a number of entities that are excluded entities and thus exempted from the global minimum tax.

Company groups will only have to pay the minimum tax in countries that are so-called “low tax jurisdictions”, but only if one of the group’s members (not necessarily the parent company) has its tax residence there. If company group has no member resident in such a state, then the group is entirely exempt from paying the minimum tax.

A low tax jurisdiction is defined as a state where the effective tax rate on the profits of the group member with tax residence is there lower than the 15% tax rate adopted as the global minimum tax.

In determining the effective tax rate on profits, it is necessary to consider not only corporate income tax but also all taxes on amounts that are considered income or profits for accounting purposes (“covered taxes”). In Hungary, in particular, covered taxes include the corporate income tax (TAO: 9%), the local business tax (HIPA: max. 2%), the innovation contribution (0.3%) and the income tax of energy suppliers (temporarily 41% in 2023). The difference between the combined rate of these taxes and the 15% defined as the minimum will be levied according to the rules of the global minimum tax.

Rules for determining the global minimum tax

The minimum tax rules define 3 types of methods for collecting the tax differential, in the following order:

• a Qualified Domestic Minimum Top-Up Tax (“QDMTT”; from 1 January 2024), which may be collected by the country of under-taxation;
• the Income Inclusion Rule (“IIR”; from 1 January 2024), which may be applied by the country of the parent company; and
• the Undertaxed Profit Rule (“UTPR”; from 1 January 2025) which may be applied by the countries of the group members if the country of the parent company has not introduced the IRR rules or the parent company is an excluded entity.

In addition to the actual tax liability, the rules also allow for deferred taxes to be taken into account, in connection with which the Hungarian Accounting Act was also amended, as reported in our previous newsletter.

As with the Country-by-Country Report (CbCR), group members will be required to file an annual return for the minimum tax (within 12 months of the start of the tax year), while the tax return and any payment obligation will have to be filed within 15 months of the last day of the tax year, except for the transitional year 2024, when the deadline will be extended until the end of the 18th month.

The legislation provides for special deductions and exemptions at several points, which can have a significant impact on the tax burden of businesses. In addition, previous tax reliefs will continue to apply, but these will not be recognised as qualified tax reliefs.

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Although the rules will only burden companies with the highest turnover, it will (also) impose a significant administrative burden on them. If you are uncertain about the conditions, the country-specific exemptions, or you would like to entrust the administration of the global minimum tax to professionals, our tax experts 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.