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Successful legislative proposals

EKAER – simplified reporting in more cases

Many of you still probably remember December 2014, when the Electronic Public Road Customs Transit Control System (EKAER) was hastily accepted. Our customers and their foreign parent companies had to make their IT systems compliant with the new requirements very quickly from January 2015. In addition to the system’s undeniable effect on whitening the economy, it also caused problems in the details. To remedy this, we put a sizeable amendments package on the table of the Ministry for National Economy. Although the majority of our ideas have not yet been accepted, our proposal regarding the simplification of the system was heard.

From October 2016, authorised economic operators according to the specific rules of the Regulation of the European Parliament and of the Council laying down the Union Customs Code can submit simplified data reports in the EKAER.

Authorised economic operators (AEO) are economic players that the customs authority considers to be reliable partners, and therefore they enjoy various benefits when dealing with customs matters. These benefits have now been expanded to include EKAER relief, which means such companies may submit simplified data reports, i.e. when requesting EKAER numbers they only have to provide basic information on the transportation (sender, recipient, licence plate). Less data means less exposure to default penalties, which we also qualified as excessive.

“For a transportation company it is not insignificant whether only 3 items of data are necessary to apply for the EKAER number, or all the data as per the relevant decree. The amendment comes as a great relief both to our authorised customers and to us.”

Gedeon Tabányi, Managing Director, Hoyer Hungária Kft.

Positive discrimination of reliable taxpayers

Conversations with our clients have confirmed that for reliable taxpayers it is worthwhile achieving a distinguished status.

We recommended to the Ministry for National Economy that taxpayers who were formerly considered qualified taxpayers if certain conditions were fulfilled, should expect a penalty of no more than 20% again if they make a mistake when calculating their tax liability. We emphasised that re-introducing this positive discrimination would acknowledge the attitude of trustworthy companies.

It took a while for this recommendation to be accepted, but the new requirements valid from 1 January 2016 exceeded our expectations in some respects. The 2016 amendments to Act XCII of 2003 on Rules of Taxation introduced the terms “reliable and risky taxpayers” and inclusion among the group of reliable taxpayers was subject to fulfilling a set of conditions reviewed during a qualification procedure.

Taxpayers fulfilling this relatively detailed set of conditions enjoy numerous advantages compared to the general sanctions: tax inspections performed at them cannot exceed 180 days, if they fail to file a tax return then instead of receiving an immediate default penalty, they receive a reminder about their tax return obligation, and the upper limit of the tax penalty for them is half the generally applied 50%, i.e. 25% of any tax shortfall – to mention just the most important advantages.

“Our company was naturally also included among the reliable taxpayers. We are very happy about this positive discrimination and about the message that as equal parties we are treated more as partners in our dealings with the tax authority.” 

Katalin Barlai Halász, Head of Finance and Accounting, Kirchhoff Hungária Kft.

Taking R&D expenses into account within groups

In a study we made a proposal to the Ministry for National Economy regarding the introduction of taxpayer groups in relation to corporate tax. We highlighted the practice used in neighbouring Austria, and sent a WTS working paper to the Ministry for National Economy, in which we summarised “tax products” applied in the corporate tax systems of countries in the region that created a competitive advantage for the given countries.

We deemed it important to create an option for the full accounting of R&D expenses within a group until a comprehensive group taxation system is introduced. It is important to bear in mind that R&D functions are often assigned to a separate company within groups, while corporate structures mean that production or sales are concentrated at other Hungarian legal entities.

As a result of our intervention, Act LXXXI of 1996 on Corporate and Dividend Tax stipulates that it is possible for taxpayers to decrease their pre-tax profit with the amount determined based on the direct cost of research and development activity performed by a related company in its own sphere of activity.

The provision can be applied on condition that the research and development activity pursued by the related entity is related to the (income-generating) activity of both the taxpayer and its related entity. An additional requirement is that the taxpayer has a statement from the related entity on the amount of the direct costs of research and development performed within the scope of its own activity in the fiscal year, and the relevant amount to be claimed by the taxpayer.

“The highly qualified workforce creates a positive environment for research and development in Hungary. We are very glad that the favourable taxation rules applicable to R&D activity help maintain this environment.”

Dr. Hans Maier, head of taxes and customs, Robert Bosch GmbH

Changes to rules on accounting entertainment costs 

Hungarian companies are normally represented at authorities, banks and with other business partners by their managing director. A popular way to foster business relations is to take business partners for lunch or dinner. Documenting these events was subject to particularly strict rules and created substantial additional administration, but this resulted in such business meals essentially not taking place. This meant additional revenue for the state budget was minimal, mainly because restaurants paid less tax and other contributions as a result.

During the legislative amendment period we submitted several proposals to the Ministry for National Economy. We proposed a simplified procedure, accounting for entertainment costs in a tax-efficient manner up to a certain amount (relative to sales revenue), and we also raised the issue of introducing a single, itemised, easy-to-calculate tax that is common in other European tax cultures (always bearing in mind the aim of reducing the overall tax burdens and administration of companies).

According to the amendment, use of restaurant services for entertainment purposes shall also be deemed an eligible cost for corporate tax purposes from 2014 if the user of the service only has a receipt issued in connection with paying the due amount by bankcard or credit card.

“The long times waiting for bills are now a thing of the past. We are delighted that hospitality backed up with a credit card payment can now be accepted and accounted for under “entertainment costs”.

Dale A. Martin, CEO, Siemens Zrt.

Lowering default penalties – topping up tax advances

In our study summarising the opinions of leading tax experts at German firms we emphasised that abolishing the requirement to top up corporate tax would be a huge step forward for companies. This is an obligation that applies to practically every company where the annual sales revenue in the fiscal year preceding the current fiscal year exceeds HUF 100 million (approx. EUR 325,000). When topping up the tax, the tax advances paid during the fiscal year have to be supplemented up to the expected amount of tax payable for the fiscal year, and by the 20th of the last month of that year. Aside from the cash flow impact of the top-up requirement and the advance financing for the state budget, the legislators also penalise taxpayers who do not comply with the above rules in full. Consequently, if a taxpayer has not paid its expected tax payable by the deadline, at least up to 90%, then a default penalty of 20% must be paid on the difference between the paid tax advance and the amount equivalent to 90% of the actual tax charge.

Based on requests received from taxpayers we submitted a proposal to the Ministry for National Economy, which became an important part of the legislative amendments in 2014, to the effect that when imposing this automatic default penalty the base for calculating the penalty should omit any exchange gain earned on the difference between the exchange rate on the date for topping up tax advances and that on the balance sheet reporting date, if such gain becomes part of the tax base. As a result, taxpayers can be more accurate in defining the amount of their tax top-up obligation at the end of the year, and they do not have to be anxious about penalties resulting from future swings in the exchange rates, which are clearly beyond the control of the taxpayer.

“LKH Leoni Kft. keeps its books in euros. Under Hungarian regulations, any profit generated and accounted in euros must be converted into Hungarian forints for the corporate tax calculation using the rate valid on 31 December of the given year. However, the expected tax base has to be calculated on 20 December, which is then used for the corporate tax top-up payment. Yet the exchange rate and therefore the tax base defined in Hungarian forints could be substantially higher on 31 December. Following the change in the law, we are delighted that default penalties are no longer levied on account of exchange-rate movements. This makes our year-end work significantly easier on the one hand, whilst also bringing a financial benefit for the group in that we can avoid overpaying our corporate tax unnecessarily.”

Achim Weinstock, managing director, LKH Leoni Kft.

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