The Hungarian government recently approved several tax law changes. Below we summarize a selection of corporate income tax and VAT changes. Most of the amendments enter into force as from 1 January 2013.
Corporate income tax changes.
Pursuant to the 2012 rules, one of the requirements for the use of tax loss carry-forwards by the legal successor in case of a transformation or by a taxpayer acquired was to continue at least one activity previously performed by the predecessor or acquired company and to generate income from such activity for at least two additional years. This restriction will not apply any more in case the legal successor or the taxpayer will be wound up within a two years period. At the same time the new rules make it clear that the requirement of continuing at least one activity will also apply to the surviving entity in case of a demerger. This provision may be applied already to tax filings for 2012. On the other hand, the restriction for tax loss carry-forwards for companies the debts of which are forgiven in the course of a court settlement closing liquidation due to insolvency or bankruptcy has been eased.
The bill clarifies the definition of controlled foreign companies where the non-resident entity’s pre-tax profit is zero or negative and it is to be analyzed what tax rate the foreign country applies. The new bill requires the lowest rate to reach 10% in case the foreign country applies different tax rates depending on the amount of the tax base (i.e. in case of progressive tax rates). When qualifying a controlled foreign company, the burden of proof of verifying that Hungarian resident private individual does not control directly or indirectly 10% of the voting rights or the capital of the investigated company does not lie with the taxpayer.
As an important simplification the sale of a business line is treated – similarly to in-kind contribution and legal succession – as non-taxable transaction for VAT purposes if the special conditions defined in the law are met. It is, however, considered a serious restriction that the non-taxable VAT status is only applicable if the business activity pursued by the business line is a product sale or service supply that entails the deduction of input VAT deduction. Accordingly, the non-taxable status cannot apply to taxable entities pursuing tax-exempt activities or the sale of a business line pursuing such activity, which may sustain considerable VAT liability for these taxpayers.
The amendment modifies the place of supply rule for the long-term lease of transportation vehicles (over 30 or 90 days in case of ships and boats) to non-taxable recipients with the aim of complying with the EU legislation. Accordingly, as from 1 January 2013, the place of supply depends on the permanent establishment, domicile or residence of the user of the vehicle in every case, irrespective of whether the vehicle is leased to a taxable or non-taxable person in the long term.
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