The government has submitted to Parliament bill no T/4243 on the planned tax changes. In the following we present the changes to the innovation contribution, income tax on energy suppliers and local business tax.

Innovation contribution

A SME corporate tax (kiva) payer, if subject to an innovation contribution, will be able to calculate the innovation contribution base on the basis of its local business tax base, determined in a simplified way under the bill. This means that the SME corporate taxpayer will be able to choose the SME corporate tax base plus 20 percent as the basis for the innovation contribution. The choice is made for a tax year and must be reported to the tax authorities on the contribution return no later than the deadline for submitting the contribution return. The new contribution base determination may be applied for the first time by SME corporate taxpayers for the year 2023.

Another important change is the bill to bring the innovation contribution base in line with the local business tax base from a transfer pricing perspective. In future the arm’s length price to be taken into account for the contribution base will be determined according to the transfer pricing methodology provided for in corporate taxation, which may include, inter alia, the obligation to adjust for the median.

Income tax on energy suppliers

Under the bill, a trader who sells petroleum products in Hungary that he has purchased from abroad will be considered an energy supplier and will therefore have to pay income tax. A trader supplying petroleum products who sells in Hungary petroleum products which he has acquired from abroad will divide his tax base in proportion to the petroleum products acquired from within the country and those acquired from abroad. In addition, the trader must keep separate records of the petroleum products he purchases from within the country and from abroad.

Local business tax

Local tax law changes in several unrelated areas:

  • According to the bill, if the cessation of activity of the private entrepreneur lasts for less than 181 consecutive days within a tax year, it will not result in the cessation of taxpayer status – and therefore tax liability – and the private entrepreneur will not have to file a final return in connection with the cessation.
  • The bill stipulates that for airlines, the fixed establishment includes not only the representative office or office, but also the airport where their flights depart. The reason for this is that the economic activity of airlines, and hence their business tax liability, is primarily based on the operation of flights and the transport of passengers, rather than on whether an airline has a representative office or office in Hungary.
  • The bill also provides for tax-advance rule for a special case where a private entrepreneur who defines its tax base with simplified method has an income of more than HUF 25 million (HUF 120 million) in the previous tax year and opens a fixed establishment in the territory of the municipality in the tax year. This was necessary as under the rules in force, these taxpayers are not liable to pay tax advances to the municipality in which the new establishment is located.
  • According to the bill, a fixed establishment is created for a temporary employment agency, as per the Labour Code, in the territory of the municipality where the temporary workers of the agency work for a total of at least 1 440 hours during the tax year. The reason for this is that, according to the legislator, the municipality where the temporary agency workers work does not typically benefit from the tax base, even though the additional workload (higher economic activity, the transportation of temporary agency workers within the municipality) is a burden on the infrastructure of the municipality.

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