Over the past few years, the approach to the corporate tax of Hungarian companies established for the varying management of immaterial assets within a group of companies has gone through a considerable change. On the one hand, the scope of the tax-related benefits is significantly reduced, on the other hand the case law of the authorities is also changed related to this.
Hungary is an attractive target
Hungary is a favoured target for international tax planning, because the Hungarian legislators have been constantly seeking to ensure to attract the foreign investors with the positive fiscal options since the end of the 1990s. This tax planning boom was at the highest in the 2000s. The most symbolic realization was that the drilling rigs in the Gulf of Mexico owned by international oil companies were in Hungarian companies’ hands, and these Hungarian companies carried out the leasing of the rigs. But the structures created for intra-group financing and the utilization and licensing of intangible assets were also popular, as they also had significant tax benefits. Such structures could be created relatively simply and without any significant local presence, so the group could save a great amount of taxes at the level of the group.
Shrinking loophole and stricter conditions
International developments related to increasingly aggressive tax planning has also been achieved in Hungary in recent years, and these changes restructured the previous positive rules and jurisprudence.
As a result, tax-related discounts are nowadays relatively limited, and they relate mainly to the utilization of copyrighted software and industrial property intellectual products. However, the lowest corporate tax rate at EU level will continue to be an attractive venue for our country, filling the gap what the lost benefits caused and attracting the foreign investors.
Although in such instances, the reader should be aware, that while earlier it was possible for Hungarian companies and structures established for passive income to function without actual presence or content, currently according to the practice and guidelines of the Ministry of Finance and the tax authorities, there is much more necessary than this for the remaining companies to take advantage of tax benefits. Based on recent findings, the tax benefits connected to immaterial assets can be utilised only to a degree, that the companies contributed to their creation and development. For this to be achieved, it is not enough for the creation and development of the intellectual property to be outsourced (whether within or outside the group of companies) but rather to earn the tax benefit, the companies must be active in at least a part of the activities to this end.
If, during the establishment of the structure, these considerations are not taken into account by the group of companies, it may jeopardize the possibility of receiving beneficial discounts. Due to this, the planning phase should get special attention and involving experts is a key to minimize risks. For further details, feel free to contact BékésPartners.
In case of question please contact:
Dr. Gergely Bogdán
Dr. Balázs Horváth