Hungary: Parliament approved Budget Bill for 2017/18

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The Hungarian Minister of Economy presented the Budget Bill to the Parliament on 2 May 2017 which was approved on 13 June 2017 with 127 votes in favour and 62 votes against.

The Budget targets a GDP growth of 4.3 percent, with 4.1 percent projected for 2017. It assumes an inflation rate of 3 percent.

The tax rate will be cut down by one percentage point to 13 percent for small business, as per the approved Budget Bill. Tax benefits for families with two children will increase, giving them an additional 420,000 forints a year in disposable income on average.

In the Budget Bill, milk, eggs and poultry are included in the list of products eligible for the 5% reduced VAT rate of Hungary which follow the recent addition of pork to the list. Additionally, the government is planning to reduce the VAT on restaurant services from current 27 percent standard rate to 18 percent on 1 January 2017and to 5 percent in 2018.

The Budget Bill for 2017 holds the personal and corporate income tax rate as previous.

Hungary: Advertisement tax rate increased

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The Hungarian Parliament has approved an increase in the advertisement tax rate from 5.3 percent to 7.5 percent while overcoming the European Commission’s illegal state aid objections and still shielding smaller media companies from the tax.

Companies with revenues below HUF100m (USD364,000) per year, will not have to pay the tax.

According to the new law, companies that have benefited from the advertising tax allowance since 2014 will receive reimbursements of taxes already paid.

Hungary: CbC reporting requirements adopted

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Hungary released a draft law on country-by-country (CbC) reporting on 10 March 2017 which became effective 15 May 2017. As a result, Hungary fulfilled the harmonisation requirement set by Council Directive (EU) 2016/88) and implemented the country-by-country reporting (“CbC report”) requirements into Hungarian legislation. According to law, all Hungarian tax resident entities that are part of a multinational group that derives annual consolidated income of at least EUR 750 million will need to comply with the CbC reporting requirements.

A Hungarian resident ultimate parent entity must file a country-by-country report with the Hungarian tax authority within 12 months of the last day of its reporting fiscal year. If the ultimate parent is tax not resident in Hungary, Hungarian resident constituent entities may become reporting entities and may be appointed by their groups to file the CbC report. Any changes in the reported data should be reported to the Hungarian tax authority within 30 days by the Hungarian group member.

The CBCR must include information on the main data of the MNE per each tax jurisdiction involved with its operation i.e. revenue, pre-tax profit / loss, paid corporate income tax, capital etc. The average number of employees in each entity must be reported. CbC reports must contain tangible assets other than cash or cash equivalents and main business activity.

The first CbC reports and notifications must be filed for the fiscal year commencing on or after 1 January 2016, within 12 months of the last day of that fiscal year. In future fiscal years notifications must be made no later than the last day of the reporting fiscal year. Any change must be reported within 30 days of such change occurring.

Failing to submit reports or notifications, late submission, or providing incorrect, false or incomplete information may be subject to a default penalty of up to HUF 20 million.

Pakistan and Hungary sign an agreement to promote economic cooperation

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On 11 April 207, Pakistan and Hungary signed an agreement in Islamabad to enhance economic cooperation and trade ties in various areas including machine industry, electronics industry, food and agriculture, water management, environmental and energy sectors.  The Finance Minister of Pakistan said while addressing the signing ceremony that the agreement is a step forward towards closer relations between the two countries.

The Hungarian Deputy Minister said that signing of the agreement is a major milestone and the next step would be the formation of the joint economic commission. He invited Pakistani businessmen to explore opportunities for cooperation with their Hungarian counterparts. He said that Pakistan is one of the hubs of economic growth and Hungary looks forward to developing strong economic ties with Pakistan.

The Joint Commission on Economic Cooperation to be established under the agreement shall monitor the effective implementation of the agreement and propose recommendations for the development of bilateral economic cooperation.

Double tax treaty between Hungary and Iran enters into force

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The double tax treaty between Hungary and Iran came into force on 1 January 2017.

The treaty defines the term “resident” as a person that under the laws of either country is liable to tax there by reason of domicile, residence, place of incorporation, place of management or any other criterion of a similar nature, and also includes that State or any local authority thereof. If a person other than an individual is a resident of both Contracting States, then it shall be deemed to be a resident only of the State in which its place of effective management is situated.

According to the provision of the treaty, dividends given by a resident of one state and beneficially owned by a company which is a resident of the other state shall be taxable only in the other state. Undistributed profits of a company resident in one state will not be taxable in the other state unless paid to a resident of the other country, or derived through a permanent establishment in the other country.

Under the tax treaty the withholding tax on royalty and interest payments will be 5% and the term royalty includes payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.

According to the treaty, any construction projects may give rise to a permanent establishment if the project lasts more than six months.

For the avoidance of double taxation Iran will use the credit method whereas Hungary will generally use the exemption method except for business profits, interest and royalty payments where the credit method will be applicable.

7 more countries sign tax co-operation agreement to enable BEPS Action 13

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According to a press release of 27 January 2017, published by the OECD, as part of continuing efforts to boost transparency by multinational enterprises (MNEs), Gabon, Hungary, Indonesia, Lithuania, Malta, Mauritius and the Russian Federation have signed the Multilateral Competent Authority Agreement for Country-by-Country Reporting (CbC MCAA), bringing the total number of signatories to 57. Lithuania and Hungary joined the Agreement in October and December 2016 respectively.

The CbC MCAA is an efficient mechanism that allows signatories to bilaterally and automatically exchange Country-by-Country Reports with each other, as contemplated by Action 13 of the BEPS Action Plan. It will help ensure that tax administrations obtain a better understanding of how MNEs structure their operations, while also ensuring that the confidentiality and appropriate use of such information is safeguarded. Information on the activation of exchange relationships under the MCAA will be released in due course.

Gabon, Indonesia, Malta, Mauritius and the Russian Federation signed the Agreement at a signing ceremony held during the second meeting of the Inclusive Framework on BEPS on 26-27 January 2017. The inclusive framework brings together over 100 countries and jurisdictions to collaborate on the implementation of the OECD/G20 Base Erosion and Profit Shifting (BEPS) package.

Luxembourg: Parliament ratified DTA with Hungary

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According to a journal published on 27 December 2016, Luxembourg ratified the LuxembourgHungary Income and Capital Tax Treaty (2015) on 23 December 2016. Once in force and effective, the new treaty will replace the Hungary-Luxembourg Income and Capital Tax Treaty (1990).