Category: Hungary

The National Tax and Customs Administration (“Authority”) has presented its vision for the future at a taxation conference held at the end of November 2019. The Authority has outlined that the emphasis will continuously be on the tax inspection of companies alongside with seizing the benefits of digitalisation and development. The principal objective of the Authority is to promote and enforce compliance with legal obligations. This objective will be supported by a new obligation (applicable as of July 2020) that requires taxpayers to provide complete data on their invoices.

At the conference the Authority has mentioned several changes and new objectives concerning their procedures and the role of the Authority (e.g. electronic invoice submission, new data provision obligation, new types of tax inspections and new functions of the Authority). Electronic invoice submission will be mandatory not only for invoices exceeding HUF 100,000 (including VAT), but also for any other invoices as of 1 July 2020. This change means that the Authority will have information on all of the economic (invoicing) relationships between taxpayers.

In line with the guidelines of the OECD, by using Standard Audit File – Tax (SAF-T) (which is an international standard for electronic exchange of reliable accounting data from organizations to a national tax authority), tax authorities will be able to inspect thoroughly transactions between companies in the future. 

The Authority has also announced that in the future it plans to provide new services, including ”communication functions” (i.e. drawing the taxpayers’ attention to more favourable taxation options in its information letters), provision of a new free invoicing interface (available at https://onlineszamla.nav.gov.hu/home) or the operation of a chatbot that will be able to answer taxation related questions automatically. 

Based on the above, the role of the Authority itself (as a service provider) are facing major changes. The new data provision obligation on invoices and the application of Standard Audit File – Tax (SAF-T) will reform the inspection practices of the tax authority, which may mean that all of the taxpayers will be audited by the Authority annually.

By Gabriella Galik, Partner, KCG Partners Law Firm

At the beginning of December 2019, the Hungarian Parliament accepted an amendment to the Hungarian Duty Act, which is supposed to enter into force on 1 February 2020.

It is clear that the market value of properties in external area increases once they are drawn into inner area. According to the reasoning of the amendment, the objective of the new law is to discourage speculative activities, the sole intention of which is to realize material profit from drawing properties in external area into inner area. The duty payment obligation aims to reduce this speculative method and curb the abuses.

Based on the amendment, the transfer of a property drawn into inner area or of the share of a company owning such plot will be subject to duty payment obligation. The amendment introduces the definition of the “property drawn into inner area” (in Hungarian: “belterületbe vont ingatlan”), which means a plot that has been drawn into in inner area during the owning period of the seller or during the period of being the beneficiary of its pecuniary rights, but not earlier than within 10 years prior to the transfer. This rule will also be applicable in certain other cases, for example if the property has been drawn into inner area not by the seller, but by a person who donated the plot to the seller. However, a plot should not be considered as a property drawn into inner area that has been specified as inner area in the 6th year following the acquisition of the plot by the seller or later, or if it has been inherited by the seller.

The basis of the duty is the difference between the market value of the property transferred and the market value of the property at the time of its acquisition (i.e. the profit realized). The rate of the duty is 90% and it must be paid by the seller. In addition, the sellers of such properties or the share of a company owning a plot drawn into inner area will have notification obligation to the tax authority. 

The rules mentioned above will be applicable for cases where the drawing of property into inner area has been executed following 31 January 2020.

By Lidia Suveges, Attorney at law, KCG Partners Law Firm

Kristof Ferenczi, Head of Kinstellar’s firm-wide Energy & Natural Resources practice, has been appointed Managing Partner of the firm’s Budapest office.

Ferenczi replaced outgoing Managing Partner Csilla Andreko, who led Kinstellar’s Budapest office for all of its 11 years following Linklaters’ withdrawal from Hungary in January 2007 (she was also MP of Linklaters for some time before it left the market). Although stepping down as Managing Partner, Andreko will continue as head of Kinstellar’s Banking, Finance and Capital Markets practice, both in Hungary and regionally.

“I am proud and honored to be entrusted with this leadership role,” commented Ferenczi. “I am confident that alongside the other partners and the committed, talented, and dynamic team in our Budapest office, we will continue to deliver outstanding client service.’’

Ferenczi holds a 2000 degree in law from Eotvos Lorand University in Budapest, and he first joined legacy Linklaters in 2001. After almost four years at the firm he moved to Mathe Matrai Hayhurst Robinson, where he spent a year, and then spent a year with DLA Piper before returning to Linklaters in January 2006.

“Our Budapest office is recognized as one of the top law firms in Hungary,” commented Andreko. “I am proud of our excellent team and what we have achieved so far. We have been contemplating this change for some time and the handover to Kristof is taking place at a time of growth and continued success following the office’s first 11 years as a part of Kinstellar. Kristof represents management continuity in Budapest, and I am absolutely sure that the office will continue to prosper and thrive under his leadership.”

The provisions of the Hungarian Labour Code on the employees’ leave entitlement will be modified as of 1 January 2020. The new provisions are aimed at extending the employees’ entitlement to take leave for the purpose of providing care for their child.

According to the current provisions of the Labour Code, mothers are entitled to 24 consecutive weeks of maternity leave. Those women are also entitled to maternity leave who adopted a child. Currently, fathers are not eligible to take this maternity leave, only the so-called paternity leave which is a 5 days of extra leave to be taken before the end of the second month after the date of birth. These provisions will be modified as of 1 January 2020, by ensuring that if the father provides care for the child under the decision of the court or the guardianship authority due to the mother’s health condition or death, the father can use the maternity leave. This means that under certain conditions, fathers will be also entitled to take the 24 weeks of leave. According to the reasoning of the modification, under certain limited circumstances fathers might be entitled to receive maternity pay; therefore, in order to ensure the coherence of the various regulations, it is necessary to modify the Labour Code to guarantee that the maternity leave is available for both parents irrespective of their gender.

Furthermore, another modification relates to the unpaid leave available for parents. According to the current provisions, employees are entitled for unpaid leave for the purpose of taking care of their child, until the child reaches the age of 3, and such leave should be allocated at the time requested by the employee. According to the new provisions, those employees will be also entitled for such unpaid leave who adopted a child, for a period of 3 years from the date of placement of the child, or for a period of 6 months when the child is over the age of 3 years.

By Levente Csengery, Founding Partner, KCG Partners Law Firm

According to the press release issued on 6 December 2019, the Hungarian Competition Authority (GVH) imposed a fine of HUF 1.2 billion (EUR 3.6 million) on Facebook for misleading users by claiming its services were free.

GVH found that Facebook Ireland Ltd. had breached competition law when it advertised its services as being free of charge on its home page and Help Centre. GVH stated that users did not have to pay a fee for using the service, however, Facebook benefited economically from the user’s activity and data. According to GVH, the user data Facebook gathered enabled it to post targeted ads for users. In addition, users were not aware of the amount and value of data handed over to Facebook while using the service.

GVH imposed a fine amounting to a total of EUR 3.6 million, which is the highest fine that the authority has ever imposed in a consumer protection case.

It is unclear yet whether Facebook had amended the misleading statements since then.

By Adrienn Megyesi, Attorney at Law, KCG Partners Law Firm

Deloitte Legal has advised Hungarian web-based insurance broker Netrisk and its majority shareholder, MCI.EuroVentures 1.0., on Netrisk’s acquisition of a 100% stake in Biztositas.hu Biztositasi Alkusz Kft., a Hungarian online insurance agent.

Obtaining a concentration permit from the Hungarian Anti-monopoly Office, which was issued on 12 December 2019, was the prerequisite of the transaction. The transaction was partly funded by a loan granted by Bank Gospodarstwa Krajowego.

Biztostasi Alkusz provides access to an Internet platform that allows customers to compare insurance, banking, and telecom products.

Deloitte Legal’s team consisted of Partners Pawel Moskwa, Agnieszka Ziolek, and Karol Kicun, Senior Associate Diana Sofu, and Managing Associate Mariusz Banas.

Deloitte Legal did not reply to our inquiry on the matter.

A new amendment package was approved in the middle of December 2019. The package includes many novelties affecting the validity and issuance of driver’s licenses, the documents of newborns, document modifications due to marriage, procedures related to death and identity checks conducted by the police.

The main feature of this modernization is the introduction of video technology that will enable the clients to identify themselves completely electronically during procedures without the need of appearing in person at the authorities. This electronic (remote) identification will be viable either by the use of robots installed at the authority offices, appropriate home desktop computers or compatible civilian-owned mobile devices. 

An additional change is for example that, it will be possible for the new drivers to start driving right after the successful driving exam, and the driver’s license will be issued automatically without any application or request procedure. The portraits and signatures required for the issuance of the driver’s license will be automatically retrieved from the personal data and address register or from the passport register, provided that a less than three years old portrait is available. If there is no adequate portrait available, the driver can use the above mentioned electronic (remote) methods to supply one.

Newborns born in Hungarian institutions with clear legal statuses, whose registration is initiated by a health care provider, will receive ex officio a birth certificate, ID card, address and social security card. These documents will be served in a single package when leaving the hospital.

The issuance of new documents (i.e. ID cards, tax cards, address cards, social security cards, driver’s licenses, passports, etc.) due to name changes arising from marriage will also be handled automatically, without the need of a request. In addition, it will be possible to completely automate the biometric identification system, which, as of now, operates semi-automatically, resulting in that portraits are compared automatically, but a human verification is required at the end of the process.

Due to the overload and lack of manpower in the public administration system, the above changes are naturally welcome, however, they also raise questions relating to the compliance with data protection rules within the European Union. It is also very important to develop user friendly applications and interfaces, so that everyone can really benefit from the electronization.

By Rita Parkanyi, Partner, KCG Partners Law Firm

Affiliated enterprises have to report their related undertakings in a Country-by-Country (furthermore “CbC”) report until 31 December 2019 for the financial year of 2018. The information therein is used for high level transfer pricing examination and risk assessment. If a company fails to comply with the deadline mentioned above, it may expect a default penalty up to HUF 20 million (~ EUR 60,420) from the Hungarian Tax Authority.

In order to ensure the flow of information from large enterprises to local tax authorities and to be able to explore the structure of such companies easier – hence strengthening transparency –, the CbC report system was introduced in 2017 as a part of the new three-level transfer pricing documentation based on BEPS Action 13. This measure has been adopted by over 90 countries resulting in 2400+ bilateral relationships. Adoption of the CbC report also makes it easier for local tax authorities to gain information from parent companies or subsidiaries formed outside of the country’s territory in question. The report is only obligatory for companies who have reached an income of EUR 750 million in the financial statement of the relevant year. 

However, not every member of a multinational corporation is required to compile a CbC report, only the ultimate parent company, who has to submit such report to its competent authority of its tax residence. Other members are also required to notify the national authorities about the fact that there is another member in the multinational corporation that will compile the report. Furthermore, there is a notification obligation arising from change of information that is stored at the database of the local tax authority, which should be reported in 30 days. It is important to underline that a CbC report must be submitted every year and failing to submit the report by the deadline and paying the default penalty imposed for late submission does not exempt the company from compiling and submitting the report.

By Eszter Kamocsay-Berta, Managing partner, KCG Partners Law Firm

The autumn tax package was submitted to the Hungarian Parliament on 12 November 2019.

The new legislative proposal recommends to combine four types of contributions – i.e. the pension contribution, in kind and financial health insurance contributions and social contribution – into one single social security contribution. As a result, from 1 July 2020 the new unified contribution would be 18.5%, which is overall the same amount. The new proposal ensures that primary producers and those in agency relationships will also be eligible for labour market benefits. This fusion of contributions will also change the share of each social security fund. Until now, it has been clear that the pension contribution is the revenue of the Pension Insurance Fund, while and the health insurance contribution is the revenue of the Health Insurance Fund. After the fusion, the tax authority will transfer 54% of the contribution to the Pension Fund, 37.9% to the Health Insurance Fund, and the remaining 8.1% to the National Employment Fund.

Another important element of the tax package is to allow for trusts and private foundations to open permanent investment accounts (PIA) for the purpose of distributing the assets to the individual beneficiary. In this context, the financial assets received by the individual will not be categorized as an income if he/she obtains the profit derived from PIA. Furthermore, the proposal extends the scope of property acquisition stamp duty allowances to private foundations, thus unifying the levy exemptions of the trust and the private foundations.

By Eszter Kamocsay-Berta, Managing partner, KCG Partners Law Firm

On 24 October 2019 certain amendments entered into force relating to the rules of simple notification in construction matters (in Hungarian: “egyszerű bejelentés”).

As a main modification, in case the client is a natural person and wishes to ensure his own housing by a simple notification, the building activity can be performed without keeping a log-book, without the technical management by the designer (in Hungarian: “tervezői művezetés”) and without any liability insurance of the designer or the contractor.

As a result of this amendment, the building activity subject to simple notification no longer can be initiated by putting in standby the electronic log-book, but the simple notification must be made on the platform of electronic Documentation System Supporting the Building authority permission procedure (in Hungarian abbreviated: “ÉTDR”). Furthermore, the modified rules enable the client to obtain the occupancy permit or the certificate of completion in case the building site has not been handed over by the contractor, however, the client already has the declaration of the contractor certifying that the building is proper and suitable for safe use. 

The modified government decree on the simple notification of residential buildings lists the content of the simple notification and the documents to be attached to the notification. In addition, the modified annex of the decree contains a more detailed list of the minimum work parts of the simple notification constituting the construction documentation.

By Lidia Suveges, Attorney at law, KCG Partners Law Firm