As of 2024, members of multinational groups or large domestic groups of companies whose annual net turnover as shown in their consolidated accounts exceeds €750 million in at least 2 of the 4 years preceding the year under review may become liable to the domestic top-up tax liability.
As the experts from the Ministry of Finance pointed out during our tax conference last week, there are still issues that need to be decided and confirmed at international level regarding the practical application of the rules, but it is strongly recommended that all businesses concerned start preparing as soon as possible.
Although the first tax return for domestic group members liable to pay domestic top-up tax under the new rules will be due at the end of May 2026 at the earliest, it is highly recommended to consider the main questions and prepare preliminary calculations now to ensure a prudent planning.
WE RECOMMEND CONSIDERING THE FOLLOWING QUESTIONS:
- Do we have all the information we need to decide whether our business is affected by the new domestic top-up tax liability?
- How shall we determine the effective tax rate considering the domestic rules? To what extent is it necessary to take individual group members into account when calculating the domestic top-up tax?
- If the pre-calculated effective tax rate is below 15%, can we adjust the rate by special items e.g. deferred tax? If we want to apply the adjustment with deferred tax, the deferred tax items must be included in the 2023 accounts. (Deferred tax has been implemented since 31 December 2023 in the Hungarian Accounting law.)
- To what extent would the benefit of substance-based income exclusion (eligible payroll costs and eligible tangible assets) reduce our liability? In some cases, substance-based income exclusion may reduce the top-up tax liability even to zero.
- Is an exemption applicable? There are more exemption options available to businesses. Which type might be relevant for our business?
- Is the tax amnesty for participation exemption relevant for our business? Companies wishing to use this amnesty can do so at the latest by the deadline for filing their 2023 corporate tax return.
- Has the country of the foreign parent company implemented global minimum tax rules from 2024? To avoid possible double taxation, close cooperation and coordination between the parent company and the group members should be initiated as soon as possible.
- What is the quantified impact of the tax benefits claimed by our business on the effective tax rate and thus on the top-up tax liability? Is the new R&D tax credit relevant for our business?
- As a company with a tax year other than calendar year, when will we first become liable and when is it advisable to start preparation?
As you can see from the above, careful preparation requires close cooperation with the other members of the company group, timely collection of the necessary data and starting the preliminary calculations as early as possible.
A default penalty may be imposed for failure to comply with the obligations related to the domestic top-up tax, with a HUF 5 million fine for failure to report data and a HUF 10 million fine for failure to file a return. The legislation does not provide for a fine in transitional years, i.e. for tax years starting before 31 December 2026, but makes this conditional on the group member having acted as expected in the given situation. This condition also implies that prudent preparation is expected from all undertakings concerned.
If you have any questions related to the above-mentioned issues, our tax team is ready to assist you.