One of the most important elements of the tax package adopted by the Hungarian Government on 13 November is to create the possibility of tax groupings for CIT purposes from 1 January 2019.
One of the main advantages of the group taxation is that the members of the group are exempted from the obligation for supporting the prices applying between the associated enterprises (i.e. the transfer pricing documentation) regarding the transactions between the group members. The other main advantage is the determination of the common tax base. In order to determine the common tax base of the group, the tax bases of the members having positive tax base must be added up first, then the amount (or a part of the amount) of the tax bases of the members having negative tax base can be deducted (except for the deferred losses generated prior to becoming a member). The deduction is the half of the amount of the added positive tax bases. The members of the tax groupings for CIT purposes may be corporate taxpayers that are related companies based on at least 75% voting right. Not only direct, but indirect voting rights may also give the possibility for the concerned taxpayers to become members of the same group taxation, but only if the direct voting rights underlying the indirect voting rights reach or exceed the rate of 75%.
The establishment of a group taxation for CIT purpose requires the authorization of the Hungarian tax authority. For the first time, the application must be submitted between 1 and 15 January 2019, which is a mandatory time-limit.
By Eszter Kamocsay-Berta, Managing Partner, KCG Partners Law Firm