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Group taxation in Hungary: brand new opportunities for domestic companies

In principle, every Hungarian domestic taxpayer has to pay its own corporate income tax. However, thanks to the increasing worldwide tax competition, from 2019 there is the possibility in Hungary to form a tax group for Hungarian corporation tax purposes. As a result, the involved companies should be treated as a single taxpayer according to the statement of Niveus Consulting Group, the Hungarian member firm of DFK International.

The main benefit of a tax group is that a loss incurred by a member can be deducted from the profits earned by other companies in the group and the intercompany transactions between group members are exempted from transfer pricing rules.

The formation of a tax group is subject to certain conditions. The main condition is that all of the group members shall be directly or indirectly controlled at least in 75% by the same entity. In addition, the involved companies should i) have the same financial year, ii) apply the same accounting policies and iii) use the same functional currency;

For creating the tax group for FY19, a declaration has to be submitted to the Hungarian tax authority between 1 January 2019 and 15 January 2019 (missing the deadline is not permitted).

The newly adopted tax bill introduces certain rules with respect to losses carried forward and carried back, which should be considered by the potential group members while choosing to set up a corporate tax group.

Niveus Consulting Group’s Transfer Pricing Partner, Janos Giraszin said: “Being a member of a tax group may also significantly affect the transfer pricing obligations, since transactions between the members are not subject to the transfer pricing and the related documentation rules during the membership which may led to a serious decrease of administrative burden.”

For the decision to create a corporate tax group, however, several circumstances and factors should be evaluated in order to maximize the benefits of the brand new legislation.

Niveus Consulting Group’s Tax Partner, Lajos Bagdi stated: “The new rules effective as of FY19 allow the companies to opt group taxation, thus they definitely have to consider the pros and cons of this opportunity as soon as possible”.

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