The new regulation introduced the concept of net borrowing costs which, taking a profit & loss approach, considers the “expense” balance of borrowing costs and (taxable) interest and similar income (financing costs higher than interest-type income). Net borrowing costs defined above can be claimed in the corporate tax base up to 30% of EBITDA or HUF 939,810,000 (roughly EUR 2.9 million), whichever is higher.

Applying the new interest deduction limitation rules is mandatory in Hungary from 1 January 2019, but for financing contracts concluded prior to 17 June 2016, the new rules are only applicable from an increase in the financing amount and/or an extension of the term (in respect of the modified amount or term). The new interest deduction limitation rules may also be applied in respect of the period preceding the modification should the taxpayer decide to do so. This can be an option if the new interest deduction limitation rules might result in a more favourable tax base position for the taxpayer.

New rules

The interest on liabilities to financial institutions (banks, credit institutions) used to be ignored for the purposes of thin capitalisation. However, through net borrowing costs, the provisions effective from 2019 will include all types of interest expense in calculating the new tax base modifying item. So even businesses that fully finance their activities from financial-institution loans and thus formerly did not have to apply the thin capitalisation rule can be affected by the interest deduction limitation.

When defining borrowing costs, the new interest deduction limitation rules mean that not only expenses qualifying as interest are taken into account, but also costs and expenses that are equivalent to interest from an economic point of view, as well as costs and expenses incurred in connection with the raising of finance. Guarantee fees related to a financing scheme as per the non-exhaustive list of the ATAD I Directive as well as transactional fees and other, similar costs related to the use of funding fall into this latter category.

Unchanged concept

In the case of financing between related companies, the amount of any adjustment necessary from a transfer pricing perspective – due to deviations from the arm’s length price – still has to be considered as deemed interest expense or income when determining net borrowing costs.

As for businesses involved in group financing, if they achieve a profit on intra-group financing (received and given loans) it is important that they still do not have to apply the rules on limiting interest deductions. This means that if taxable interest and equivalent income from an economic point of view exceed business-related financing costs, the interest deduction limitation rule does not have to be applied (this case there are no net borrowing costs as per the relevant laws).

What about tax groups?

 Starting from 2019, tax groups can be created not only for VAT but also for corporate tax purposes. In the case of tax groups, the rules on limiting interest deductions have to be applied separately for each group member. The general limit of HUF 939,810,000 (roughly EUR 2.9 million) can be taken into account by the group member based on its net borrowing costs relative to the net borrowing costs at group level. At the group member and compared to the general rules this may result in a lower general limit.

Expected impacts of the new interest deduction limitation rules

 Given the average borrowing costs of Hungarian businesses it is likely that the majority will be able to claim their full net borrowing costs in the corporate tax base under the new interest deduction limitation rules (if this does not exceed the HUF 939,810,000 – roughly EUR 2.9 million – limit).

However, the new rules may result in a worse corporate tax base position for businesses with low EBITDA but high or extremely high net borrowing costs. Case-by-case reviews are needed to optimise operations and to identify related risks. Should you wish to entrust such a review to an expert, please do not hesitate to contact the tax consultancy team at WTS Klient Hungary. We will be happy to assist you.

A New interest deduction limitation rules in Hungarian corporate taxation bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

Romanian Fiscal Code was amended starting 1 January 2018 for transposing the provisions of Directive 2016/1164/EU of 12 July 2016. The new rules concerning also Romanian corporate income tax are intended to address tax evasion.

The most significant revisions to the Romanian corporate income tax

With few exceptions, the exceeding borrowing costs (calculated as the difference between any debt-related costs, including foreign exchange losses, debt-related costs about loans granted by financial institutions, capitalized interest – and the interest income and other equivalent income) incurred in a fiscal period, which exceed the deductible threshold of EUR 200,000 will be deductible for corporate income tax (CIT) up to the limit of 10% of a fiscal EBIDTA. In case of a negative fiscal EBITDA, only the costs up to the threshold of EUR 200,000 are deductible. Non-deductible exceeding borrowing costs are fiscally carried forward for an unlimited period.

A possible increase of the threshold from EUR 200,000 to EUR 3,000,000 is currently under discussion at the Romanian authorities level.

Exit taxation was introduced in Romania in cases of transfer of assets, tax residence and/or economic activity carried out through a permanent establishment for which Romania loses the right to tax. The tax base for 16% CIT is computed as a difference between the market value of the assets transferred and their fiscal value.

Existing General anti-abuse rule stipulated by the art 11 of the Fiscal Code was strengthened. According to this rule tax authorities can ignore a series of arrangements which have been put into place with the sole aim of obtaining a tax advantage, but such decisions should be justified.

Controlled Foreign Companies (CFC) Rules

Under these rules, a Romanian taxpayer should include in its taxable base, in proportion with its holding in the controlled foreign company, the latter’s non-distributed income derived from: interests, royalties, dividends, income from disposal of shares, income from financial leasing, from insurance and financial activities, income from certain transactions performed with associated companies. CFC is an entity held, directly or indirectly, more than 50% by the Romanian taxpayer, entity paying a lower CIT than the difference between CIT that would have been charged for the entity under the applicable Romanian law provisions, and the actual CIT paid.

Tax on micro-company revenues

Starting 1 January 2018, all companies which obtained in the previous year revenues up to RON equivalent of EUR 1,000,000 at the exchange rate valid at the year end, which are not owned by the state and are not in dissolution/ liquidation procedure have been obliged to apply micro-companies tax instead of Romanian corporate income tax.

Micro-companies tax is computed based on total revenues obtained, to which a percentage of 1% in case of companies with 1 employee, or 3% in case of companies with no employees is applied. The level of expenses recorded does not influence the taxable base in this fiscal regime, affecting businesses with low mark-up. Moreover, fiscal losses cannot be carried forward during the period in which the company applies micro-company tax regime, affecting businesses in set-up / investment phase.

In order to limit the disadvantages of micro-company tax, the Ordinance 25 published on 30 March 2018 introduces an exception to the rule above, allowing companies with a share capital of at least RON 45,000 (roughly EUR 9,600) and at least 2 employees to opt for becoming a Romanian corporate income tax payer starting 1 April 2018.

If you would like to know more about the regulation of Romanian corporate income tax, please visit the homepage of Ensight, the exclusive representative of WTS Global in Romania.

If you are interested in more news about taxation and legislative amendments in the Central and Eastern European Region, please feel free to sign up for our newsletter!

[/et_pb_text][et_pb_button button_url=”http://wtsklient.klient.hu/en/sign-up-for-newsletter/” url_new_window=”on” button_text=”Sign up for newsletter” button_alignment=”left” background_layout=”light” custom_button=”on” button_icon_placement=”right” button_text_color=”#ffffff” button_bg_color=”#cc0033″ button_border_color=”#cc0033″ button_text_size=”12″ saved_tabs=”all” _builder_version=”3.0.106″ /][/et_pb_column][/et_pb_row][et_pb_row][et_pb_column type=”1_2″][et_pb_text _builder_version=”3.0.106″ background_layout=”light”]

RELATED ARTICLE:

Significant changes in the Romanian VAT split payment system

[/et_pb_text][/et_pb_column][et_pb_column type=”1_2″][et_pb_text _builder_version=”3.0.106″ background_layout=”light”]

RELATED PUBLICATIONS:

Tax and Investment Facts in Romania 2017

[/et_pb_text][/et_pb_column][/et_pb_row][/et_pb_section]

A Changes regarding the Romanian corporate income tax and tax on micro-company revenues bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.