Bill No. T/360 was submitted on 21 June 2022 on the preparation of Hungary's 2023 central budget, which was adopted by the Parliament on 19 July and announced on 27 July. According to this law the rules of, for example, corporate tax, value added tax and local business tax will change. We now summarize the most important of these changes.

Personal Income Tax
The scope of tax exemption for public benefits is expanded by a new item in the Act on Personal Income Tax. The law states that the amount paid to a private individual is tax-exempt if it is disbursed as a scholarship by a public-interest asset management foundation performing a public task in accordance with the performance of its public task.

According to the previous rules, the fuel consumption norm determined by the government decree [Government Decree on the quantity of fuel and lubricant consumption of road vehicles, agricultural, forestry and fishing machines that can be recognized without proof] was an item that could have been recognized as an expense without proof document. Under the new rules, in the case of the use of plug-in hybrid vehicles, based on the cylinder volume of the internal combustion engine installed in the vehicle, the 70 percent of the fuel consumption norm determined by the government decree can be recognized without proof document as well. Furthermore, in the case of using purely electric vehicles, the price of 3 liters/100 km calculated with the price of ESZ 95 unleaded motor gasoline published by the Hungarian Tax and Customs Office will be included in this range.

The legislation also ensures that the Tax and Customs Office should publish the consumer price of fuel that is typically distributed only by a large company with national jurisdiction (CNG) in connection with fuel expense recognition according to the consumption norm.

As a result of the amendment to the law, an individual entitled to tax benefit for young people under the age of 25 can make a statement not only to his employer or the payer who provides him with regular income that he does not request the tax benefit, but to all payers, thus avoiding the obligation to pay taxes at the end of the year.

Corporate Tax
A new item increasing the tax base is included in the corporate tax law. It says that the pre-tax profit is increased by the amount of the impairment settled against the pre-tax profit of the tax year for the ownership share in the tax year as per the decision of the taxpayer.

An important change is that, in the future, an economic company that is not classified as a micro- and small enterprise must prepare not only the record of the arm’s length price before submitting the CT return, but must also complete data supply in the return. Until now, with regard to the default penalty on the arm’s length price documentation the taxpayer could have been fined a default penalty of up to HUF two million per document/records (per consolidated document/records) for the violation of records-keeping and document retention liability, and up to HUF four million per document (per consolidated document) in case of repeated infringement. Based on the bill, the tax authority can sanction the first violation with a default penalty of HUF 5 million, and the repeated infringement with a fine of up to HUF 10 million. Another change related to the arm’s length price is that the restriction that taxpayers who are not obliged to prepare a records/documentation of the arm’s length price cannot submit a request for the determination of the arm’s length price has been removed. We provided more detailed information on the changes to the transfer price rules in our previous Newsletter.

Value Added Tax
Until now, the Act on VAT had the possibility that the taxpayer could subsequently reduce (under special conditions) the tax base of his supply of goods or services if after the fulfillment of the supply of goods or services, for the purpose of purchase promotion according to the conditions detailed in his business policy, the taxpayer returned money to a taxable person or non-taxable person who did not purchased the product or service, the purchase or use of which entitles to a refund, directly from the taxpayer. This possibility is supplemented in such a way that the right to reduce the tax base is also granted to the taxpayer if he ensures the money refund in such a way that he does not provide it directly to the taxable or non-taxable person to whom the supply of goods or services entitling him to the refund was performed, however, additional special conditions must be met.

The change in legislation intends to deal with sales structures where the selling taxpayer is not directly connected in the sales chain with the customer who purchases the product or service. The seller provides a money refund to an intermediary party, and this intermediary party delivers it to the buyer who purchased beforehand. In the future, therefore, a reduction in the tax base can also be applied if the seller does not pay the refund directly to the person who purchased beforehand.

Local Business Tax
Due to the termination of the temporary local business tax, the repeal of the provisions of Act on the Rules of Taxation on the tax return and payment of the temporary local business tax became justified. Thus, the provision of the Act on the Rules of Taxation according to which the tax return of the taxpayer for the temporary business activity must be completed by the fifteenth day of the month following the end of the activity is no longer valid, and the rule that the taxpayer pays the tax on his temporary local business activity by the fifteenth day of the month following the end of the activity.

Company car tax
The Government Decree on extra profit tax stipulated the application of the increased amount of company car tax for a fixed period, until December 31 of this year. However, the adopted amendment places the higher tax items in the act on motor vehicle tax, i.e. the government’s intention seems to be that the higher tax is not only payable temporarily, until December 31, 2022, but permanently.

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