The Hungarian Ministry of Finance published its draft legislation for the implementation of the global minimum tax rules in Hungary for public consultation in October 2023. The package also contained some limited reasoning and impact assessment and stakeholders had one week to comment on the proposal.
Global minimum tax is the second of two pillars of the international tax deal that was agreed upon in October 2021 by more than 130 countries to address the tax challenges arising from the digitalisation of the economy and regulate tax competition between tax jurisdictions. Hungary initially was strongly opposing global minimum tax and the implementation was also postponed earlier. Now it seems that the introduction is within sight.
As it was already expected, the 15% minimum tax will apply to any multinational or domestic groups with annual revenues above €750 million, if the revenue threshold is reached or exceeded in at least two of the last four tax years. Parent companies will have to pay supplementary tax on under-taxed group members with a low tax burden.
During the negotiations, most of the debate among EU finance ministers has been about (1) which taxes should and can be included in the minimum tax, i.e. which taxes are covered by the minimum tax and thus can be credited; and (2) the specific practical considerations on how exactly the minimum tax base for groups of companies should be calculated and which tax deductions can be taken into account and in what form.
Different countries apply different types of taxes, and it is not clear in all cases which are considered taxes on profits. For Hungary, the draft contains not just the general criteria for covered taxes (tax charged on the income, revenue or profits of a group member in its accounts; tax charged on distributed profits, deemed distributed profits, etc.) but explicitly states that in particular the following shall be deemed to be a covered tax: corporate income tax, tax, local business tax, income tax on energy suppliers, and innovation levy. The draft also addresses the collection mechanisms - income inclusion rule (IIR), under-taxed payments rule (UTPR) and qualified domestic deduction of additional tax (QDMTT) in details as well as a new, compatible tax incentive regime for R&D.
Global minimum tax is set to come into force as of 2024 – with a transitional period and gradual implementation – but based on the estimation of the impact assessment, the Ministry of Finance expects that the introduction of the minimum tax will generate an extra HUF 96 billion in revenue for the state budget already over the period 2024-2026.
By Balint Zsoldos, Head of Tax, KCG Partners Law Firm
