Category: Hungary

On 2 December 2022, a new act entered into force on the modification of certain acts related to the operation of territorial administration, the land registry and regional development. Under the new act, the new Land Registry Act will enter into force one year later, on 1 February 2024, instead of 1 February 2023 as planned originally. The new modifying act also contains other amendments.

A non-authenticated copy of a land registry extract cannot be issued since 1 January 2010 on paper. The amendment now also terminates the possibility to electronically deliver a non-certified copy of the land registry extract, which is identical in content to the certified copy of the land registry extract, except for the authentication clause, but its use is much more limited due to the absence of the authentication clause.

The amendment also modifies certain provisions of the Hungarian Civil Code. The modified provisions make it clear that the prohibition of alienation and encumbrance on the subject matter of the ownership right may be based on the right of alienation together or separately, i.e. the right of alienation of the owner may be limited independently of the right of encumbrance and the right of encumbrance may also be limited independently of the right of alienation (without affecting other elements of the ownership right). On the basis of the amendment, the Civil Code records relating to the seller’s ownership retention right that during the period until the purchase price has been paid, the purchaser’s right to acquire ownership may not be impaired without his consent. In addition, under the modified provision of the Civil Code, the retention of ownership to immovable property must be entered in the land register with an indication of the related right of the purchaser.

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

On December 14, 2022, the Lajer law firm announced that the sale of the Hungarian subsidiary of Commerzbank to Erste (reported by CEE Legal Matters on January 10, 2022) had closed.

Lajer advised Commerzbank Zrt, the Hungarian subsidiary of German Commerzbank AG, on the deal. According to the firm, the share deal closed on November 30, 2022, and the portfolio transfer deal closed on December 1, 2022.

As previously reported, CMS had advised Germany’s Commerzbank AG on the sale of Commerzbank Zrt to Erste Bank Hungary. Bird & Bird had reportedly advised Erste.

The Lajer team included Partner Zsolt Lajer and Senior Counsels Csilla Szabadkai, Petra Mayer-Nagy, Gyorgy Bacsatyai, Marton Balogh, and Miklos Stettner.

The CMS team included Partners Andreas Kohler, Erika Papp, and Szabolcs Szendro, Senior Counsels Eszter Torok and Eszter Kalman, Senior Consultant Arpad Lantos, Senior Associates Dorottya Varga-Giesz, Judit Kresz, and Sandor Kovacs, and Associate Dora Altziebler.

Schoenherr has advised IT, consultancy, and recruitment company IDBC Hungary on securing its new headquarters in the Duna Tower through a lease agreement with GTC.

Founded in 1994, the Global Trade Center is a real estate developer and investor in Central Europe.

According to Schoenherr, the Duna Tower is “an iconic office building with a spectacular view of the Danube and downtown Budapest.”

Schoenherr’s team was led by Attorney at Law Laszlo Krupl and included Associate Viktoria Magyar. 

The 2022 Fall Tax Package has been officially accepted by the Hungarian Parliament with the changes for 2023. The tax package does not bring fundamental changes, but includes finetuning with many different taxes, e.g. SMEs, real estate transactions and local business taxation.

In the past few years, it became customary that there are two main tax packages in Hungary: one in the spring and one in the autumn. In 2022 an additional round took place in the summer for the abolishment/re-write-of the KATA (flat rate taxation) and now, on 22 November 2022, the fall tax package has been adopted by the Hungarian Parliament, practically without substantial changes to the original proposal. While most provisions cover specific scenarios or clarifications of existing rules, there are some notable changes, as follows:

SMEs
The abolishment of the old KATA system left a vacuum for SMEs and it seems that the most popular replacement for former KATA subjects is the so-called flat-rate taxation under personal income tax rules with 40%/80/90% automatic cost rate (available for self-employed businesses). From 2023, flat rate taxation of entrepreneurs is available regardless of revenue threshold (earned in the tax year preceding the year in question) and the limitation period (after it can be re-opted) is reduced to 1 year (from 4 years previously). As an administrative simplification, monthly reporting is replaced by quarterly reporting (of personal income tax and social security) with a special ‘rolling’ calculation of allowances/deductions.
Additional simplification applies to small entrepreneurs (with revenue under HUF 25 million or HUF 120 million in the retail sector in this regard) for local business tax. The alternative fixed tax base of such businesses may be

• HUF 2.5 million for entrepreneurs with annual revenue under 12 million,
• HUF 6 million for entrepreneurs with annual revenue between 12 and 18 million, and

HUF 8.5 m million for entrepreneurs with annual revenue between 18 under HUF 25 million (or HUF 120 million in the retail sector);
and no local business tax return is required as long as the taxpayer remains under the given threshold.

Trusts and Fiduciary Asset Management
The modification adds new elements to the already long list of tax benefits for fiduciary asset management (trust) and trust foundations and those rules might be applied retroactively for FY 2022 by the taxpayers:

• tax benefits – practically tax exemption after 5 years – for so-called long-term investment accounts (TBSZ) are also available for trusts and trust foundations;
• corporate income tax exemption for trusts is extended if the beneficiary is not a natural person, but a trust foundation set up by a natural person for the purpose of making a benefit to a natural person as a beneficiary;
• corporate income tax return can be replaced by a simple declaration if no actual income has been realized in a given financial year by the trusts or trust foundation.

Real estates
There are several changes regarding real-estate transactions as well including clarification of the definition of properties under construction and built-on new properties and prolongation of reduced tax rate of 5% for VAT purposes and of the requirements for exemption of transactions between affiliated companies for transfer tax purposes.

Advertising tax
There have been speculations and also considerations from the Ministry of Finance to discontinue advertising tax for good. Instead, it is extended until 31 December 2023, but still with the 0% tax rate; i.e. practically no advertising tax applies next year either.

By Bálint Zsoldos, Attorney at Law, KCG Partners Law Firm

The Hungarian Parliament recently adopted a rather significant update to Act LVII of 1996 on the prohibition of unfair market practices and the restriction of competition (“Hungarian Competition Act”). The updates are, at a number of points, based on recommendations made by the Hungarian Competition Association (with DLA Piper’s antitrust group providing significant input). The amendments will generally enter into force on 1 January 2023 (with some exceptions for 1 February 2023). Below, we have collected some of the key changes for Hungarian and international businesses.

Increasing the merger thresholds
As of 1 January 2023, the undertakings concerned will have to notify a transaction under the “hard threshold” rules if
• the parties’ aggregate turnover exceeded 20 billion HUF (previously: 15 billion HUF); and
• each of at least two parties’ turnover exceeded 1,5 billion HUF (previously: 1 billion HUF) in Hungary in the previous business year.
These changes generally follow the recent inflationary trends in Hungary (the last increase of the “smaller”, HUF 1 billion threshold occurred in 2017) but also aim to reduce the administrative burden on companies (the reasoning to the amendment states that the lawmaker altogether expects a 10-15% reduction in the number of notifications). As a result, parties may choose to reconsider whether the new/increased thresholds still apply to their proposed transaction.

Clarification on notifications based on the “soft threshold”
As a rule of thumb, unless the transaction meets the hard threshold, the parties do not have to notify it to the Hungarian Competition Authority (Gazdasági Versenyhivatal, “GVH”). However, a further, alternative “soft threshold” also applies to those instances where the “hard threshold” does not capture a transaction that may have anti-competitive effects.
Although this latter “soft threshold” remains unchanged (the parties’ aggregate turnover exceeded 5 billion HUF in Hungary in the previous business year), the amendment now clarifies that notifying a transaction under the soft threshold rule is not mandatory under law. As a result, the “soft threshold” system becomes a real voluntary notification regime, where it is indeed up to the parties to decide whether to notify or not (as there is clearly no sanction attached to closing without notification – as opposed to the “hard threshold”, where closing without clearance entail gun jumping).
At the same time, the rules applicable for the GVH’s subsequent investigatory powers remain unchanged: as a result, if the parties did not notify the transaction based on the “soft threshold”, the GVH may initiate a competition proceeding within six months from the transaction’s implementation and may order various measures to restore competition.

Good faith merger notification to the GVH made possible: alignment with EU rules
In Hungary, merger notifications have only been possible after the parties have signed their merger agreement, factually acquired the relevant controlling interest or announced their public takeover bid. Now, in line with the EU merger control regulations, the amendments allow parties to notify their transaction to the GVH where they can demonstrate their good faith intention of proceeding with the transaction. Although the precise meaning of this provision is to be developed, it will certainly allow greater flexibility to notify the GVH before the conclusion of their agreement (although parties have already enjoyed wide-ranging possibilities to discuss their proposed transaction with the GVH through the very effective informal guidance process).

Increasing administrative fees and fines for gun jumping
The GVH may impose a fine on the parties in case they implement a transaction before clearance from the GVH in case the above “hard thresholds” are met. The fine amount is calculated from the transaction’s implementation on a daily basis. As of 1 February 2023, the maximum daily fine amount will increase from 200,000 HUF to 300,000 HUF.
The administrative fee for the merger proceedings will also increase: the new figures are 4 million HUF (previously 3 million HUF) for the Phase I and 19 million HUF (previously 15 million HUF) for the Phase II proceedings. At the same time it is important that the fee for the “simplified” proceedings (1 million HUF, covering the vast majority of merger proceedings) remains unchanged.

Temporary control of investment funds and investment fund managers
Irrespective of the “hard” and “soft” thresholds, a temporary acquisition for the purpose of resale will not have to be notified in cases where investment funds and investment fund managers acquire assets or shares of another undertaking if the resale is carried out within a one-year period. The personal scope of this provision (that previously covered insurance holding companies, credit institutions, financial holding companies etc.) will thus now be expanded to investment funds and investment fund managers.

Formal notice – a new tool of the GVH
By way of a formal notice, the GVH may contact and inform an undertaking about the GVH’s concerns regarding the undertaking’s allegedly unlawful practices. The formal notice does not preclude the initiation of a competition supervision procedure, nor does it mean a finding of an infringement. Therefore, the undertaking may present reasons to justify its conduct or the steps to be taken in order to comply with competition laws.
To increase transparency and promote compliance, the GVH will publish information about the formal notices on its website annually, including the alleged infringement and the markets concerned. This can be a useful indicator in the future about the GVH’s enforcement priorities.

Expanding powers of the GVH in relation with the EU’s Digital Markets Act (“DMA”)
The DMA defines a series of obligations on so-called “gatekeepers” that are active in the online platform economy and capable of creating a bottleneck in the digital world. Gatekeepers that provide services such as online marketplaces, social network services, online search engines and certain messaging services will be scrutinized by the European Commission under the new DMA rules, which will enter into force in May 2023.
In Hungary, the GVH will now be the designated authority that cooperates with European Commission in the course of enforcing the DMA. In this framework, the GVH, among other powers, may itself initiate a competition proceedings if a gatekeeper fails to comply with the obligations laid down in the DMA and notify the European Commission about its findings.

By Gabor Fejes and Zoltan Marosi, Co-Heads of Competition and Antitrust, DLA Piper Hungary

Under the “heavy influence” of the current autocratic regime, Hungary might seem stable but Forgo, Damjanovic & Partners Managing Partner Gabor Damjanovic wonders if the country is prepared to tackle the challenges of the wider economic context.

“Hungary has had a highly autocratic regime at the helm ever since Viktor Orban took power in 2010,” Damjanovic begins. “Looking at the region and the wider Europe or even outside, I’d say that other countries are experiencing similar problems with leadership, with recent elections resulting in major wins for the far right,” he says, pointing towards Poland, Serbia, Israel, Italy, and Sweden. “The entire world seems to be taking a swing towards the far right – and we are all going to have to learn how to adapt.”

With no real changes in the past 12 years, Hungary has had a fairly stable government, according to Damjanovic. “Stability, of course, is favorable, but we still don’t know what the winter will bring and how the situation with the gas and energy prices is going to pan out,” he says. “Taking into account the high worldwide inflation as well – the immediate future is very difficult to predict.” He reports that the EU has “halted certain funds coming into Hungary, and the country is looking forward to putting measures in place to unlock these funds. When they got cut, all major infrastructure work and state-run projects have come to a virtual grinding halt.”

“For apparently a decade now, we have had access to cheap money in the country and in much of the world – from venture capital, private equity, and other strategic investments. Now, however, that’s over – not just in Hungary – the funds are drying up, and we are all sure to feel it soon, especially when it comes to transactional work and real estate,” Damjanovic continues. “What I see now, with soaring energy prices, high-interest rates, and huge inflation – not to mention the ongoing war in Ukraine and many countries’ shifting to the far right – is something that our generation hasn’t witnessed yet and is reminiscent of the 1920s and 1930s,” he explains. 

Focusing on specific sectors, Damjanovic reports that the “automotive sector has been very strong in the past ten years – and the Orban regime has been very keen and successful on getting more automotive production into Hungary.” Another strong sector, boosted partly by the energy crisis, is renewables, “especially solar-powered projects, which are no longer reserved for commercial plants. Residential households are coming into play as well with everybody wanting to have a solar panel on their home due to soaring energy prices and the unknown. The waiting time for this, however, is a few years by now,” he explains.

Finally, Damjanovic reports that the overall status of the Hungarian economy is “under the heavy influence of Viktor Orban – according to unofficial figures often heard, some 30-50% of the economy is either run by the state and/or state-owned companies or by Orban’s family and friends. They have a huge appetite for acquiring companies and expanding their portfolio in different sectors and this drives much of the transactional activity.” Damjanovic says that the situation is “stacked in their favor with even laws sometimes changing so as to fit their needs best.”

Dentons has advised Belgium-based real estate developer Codic on the development of the Green Court multifunctional project in Budapest and on its EUR 77 million sale to Groupama Gan REIM. CMS reportedly advised Groupama.

According to Dentons, “the project consists of a residential, office, and retail complex with approximately 20,200 square meters of lettable space. The investor, acting on behalf of SCPI Affinites Pierre, purchased the Green Court office complex in an asset transaction, which closed successfully in November 2022.”

Dentons’ team included Partner Judit Kovari, Senior Associates Anna Gerendas and Rita Varnagy, and Associates Eszter Szolnoki, Zsombor Franko, and David Demcsak.

Hungarian merger control is generally aligned with the relevant EU rules with only relatively minor exceptions or special rules. For example, a notable special rule – which follows similar trends in major European jurisdictions – is the existence of the soft threshold regime, which enables the Hungarian Competition Authority (the Gazdasági Versenyhivatal, “GVH”) to intervene in case the traditional/“hard” thresholds are not met, but where competition is threatened on a specific market (e.g. in case of “killer acquisitions”).

Now, recently, a further important exception has arisen, which diverges from the approach taken by EU merger control and which has important ramifications for all transactions potentially falling under Hungarian jurisdiction (i.e. typically those, where the EUMR thresholds are not met, that is those transactions, which do not fall under the one stop shop jurisdiction of the European Commission). Namely, if a transaction involves a target company group, which has a joint venture with a third party, then the GVH considers this – fully independent – third party also as an “undertaking concerned” by the concentration (even though the third party typically plays a passive role in the transaction, in some cases not even being aware of its existence). For example, if Conglomerate A acquires sole control over the entire Conglomerate B and Conglomerate B has (among lots of other companies) a joint venture (JV) with Conglomerate C, then the GVH’s view is that we talk of two related transactions: (i) an acquisition of sole control by A over B and (ii) an acquisition of joint control (indirectly) by A and C over the JV. As a result, the GVH also requests this second transaction to be fully assessed and explored in the notification as a “follow-on merger”.

Importantly, this approach has now been expressly confirmed in the recently published Vj-43/2020 (GI International case) decision, where a HUF 11.1 million fine was also imposed for gun-jumping (although literally, the GVH’s merger notice included this possibility since 2021, parties have questioned such strict interpretation in several cases, but any uncertainly has now been dispelled).

Although the above issue may appear to be rather technical at first, it has major procedural and substantive consequences for the mergers of all larger conglomerates/company groups, which typically include some joint venture companies, which are controlled jointly by the given conglomerate and a third party.

First, when calculating the turnover of the conglomerate/company group, the traditional approach (under the EUMR and under the merger rules of most jurisdictions) would simply dictate that one takes into account a half of the turnover of the JV (in case of two joint controllers) and then proceed with the turnover calculation, not looking at the other joint controller at all. Now, under the GVH’s new approach, the other joint controller is a “fully-fledged” undertaking concerned, which means that its turnover (including its entire group of undertakings!) is relevant from the perspective of turnover calculation. This can entail that in case a “larger” company acquires a “smaller” company, then – if the “smaller” company has a JV with another “large” company – there would be an obligation to notify in Hungary, even if originally the turnover thresholds would not be reached as the “smaller” company’s turnover fell below the HUF 1 billion threshold.

Second, treating the third party as an undertaking concerned also requires additional efforts by the notifying party: it has to present this third party (i.e. its entire group of undertakings) in the notification form (in detail, including the activities of all subsidiaries). This is especially curious, since the third party is not in any way a participant to the original transaction that is notified to the GVH (as it is merely a passive observer, merely following the change of ownership in a JV, in which it participates). This can also entail significant practical challenges in terms of data gathering as well.

Finally, the third party’s involvement may also change (or at least refine) the substantive assessment of the transaction’s notification as one has to take into account each market where the third party is active in. This could be fully understandable in case the notifying party and the third party are direct competitors (as indeed, there could be horizontal issues stemming from the fact that the transaction would result in competitors sitting on the board of the JV). At the same time, the GVH’s new approach could cause additional hurdles in case the horizontal or vertical “overlaps” exist between the activities of the notifying party and those “parts” of the third party that are far removed from the JV itself.

As a result, parties looking at the Hungarian merger control notification obligation should be well aware of the above new exception and should tailor any merger control information requests accordingly to avoid any gun-jumping allegations (and thus: possible fines) in Hungary.

By Gábor Fejes, Co-Head of Competition and Antitrust, Zoltán Marosi, Co-Head of Competition and Antitrust, and Levente Molnár, Senior Associate, DLA Piper

Hungary’s parliament passed a package of anti-corruption laws on 3 October 2022 as part of the commitments made by the government to the European Commission.

Earlier, the Commission officially triggered the so-called conditionality mechanism against Hungary and requested measures to remedy rule-of-law-related issues as well as to increase the transparency and effectiveness of the distribution of EU subsidies. The stakes are high, as the Commission proposed to suspend about EUR 7.5bln of funds allocated to Hungary if the government fails to properly address the Commission’s concerns.

The key element of the legislative package is the Act on the Control on the Implementation of EU Funds (Act XXVII of 2022) establishing the Integrity Authority (“IA”), a new watchdog to monitor the distribution of EU subsidies. The IA will start operating from 19 November 2022.

What will be the IA’s role and who will oversee it?
Although it will be a national authority, the IA’s primary responsibility will be to protect the EU’s financial interests. To do this, it should be established as a fully autonomous administrative body that is not bound by any instructions and will only be subordinated to applicable laws. The director and his or her deputies, however, are appointed by the president of Hungary, at the proposal of the president of the State Audit Office, for a non-renewable term of six years. The potential candidates are previously shortlisted by an expert committee whose members are selected through a public international tender.

The IA will take action whenever it detects circumstances that may adversely affect the implementation of EU funds, such as fraud, conflict of interest or corruption. In practice, this means that the IA will monitor all projects and investments implemented in Hungary using EU-related funds. The IA may investigate planned, pending or even past cases. On the other hand, this new entity will not be regarded as a general anti-corruption watchdog, as it will not be entitled to scrutinise any procurement using state funds only.

How can the IA protect the EU’s financial interests?
The IA is assigned to analyse, investigate and control. As part of its analytical tasks, the IA performs integrity risk assessment covering Hungarian public procurement practice and produces integrity analysis reports and recommendations.

In its investigative role, the Authority may conduct investigations in individual cases and request the actions of other public bodies. It may request information from any person or organisations, may contact other Hungarian or European authorities, including the European Anti-Fraud Office (OLAF) and the European Public Prosecutor’s Office (EPPO), and take evidence on behalf of other bodies responsible for monitoring the use of EU funds.

The IA will prepare a report of its investigation and recommendations, which will be communicated to the person or entity under investigation. If the investigation finds irregularities in the use of EU funds or that recommendations are not being properly implemented, it may refer the matter to the competent authority or court.

In addition, the IA may review public procurement procedures involving EU funds, prescribe information obligations and may even instruct contracting authorities to suspend a procedure. If a contracting authority does not comply, the IA may impose administrative fines and refer the case to the competent court.

Who can turn to the IA?
The IA will carry out a general monitoring role and thus may take action ex officio in any case it deems necessary. Since the IA’s activity should primarily focus on major public procurements, any stakeholders, including foreign investors and NGOs, will also be eligible to request the IA to take action. Thus, the IA could become the primary “go-to” authority and source of benchmark for foreign investors in relation to Hungarian investment and public procurement projects.

Furthermore, the IA’s procedure commence without a third party’s initiation, at the request of another authority, or based on a notification or complaint submitted by anyone. In relation to the latter, the IA is required to set up and operate an online platform where notifications and complaints may be filed anonymously.

What else other than the IA?
Besides the above, a number of other conflict of interest and transparency related changes have been implemented into the public procurement and EU funds distribution regimes.

The amendments also touch on the rules governing public interest data requests, significantly reducing their costs. In addition, the armed officers of the National Tax and Customs Authority (NAV) will have to provide on-site support for the smooth conduct of investigations by the EU’s anti-fraud watchdog, OLAF, upon request. And finally, the adopted package also establishes safeguards for the involvement of public consultations and impact assessments in legislative processes.

By Gergely Horváth, Attorney at Law, Alexandra Bognár, Attorney at Law, Bálint Szabó, Associate, Ákos Kovács, Associate, Noémi Suller, Associate Schoenherr

Former CMS Senior Counsel Peter Szilas has joined Jalsovszky as a Senior Associate and Head of the firm’s Commercial Litigation practice.

Specializing in litigation and disputes, Szilas previously spent over ten years at CMS, where he first worked as a Senior Associate, between 2011 and 2021, and later as a Senior Counsel, from 2021 to 2022. Earlier, he was a Legal Counsellor at Hungary’s Ministry of Public Administration and Justice, between 2010 and 2011, and at the Ministry of Justice and Law Enforcement, from 2007 to 2010. Between 2003 and 2007, he was a Counsel with Hungary’s Ministry of Justice.

“Joining Jalsovszky means joining not only a law firm for me but, above all, a culture and a well-functioning community of people,” Szilas commented. “I find it particularly exciting to join a growing and developing dispute resolution practice, which offers me many professional and business challenges.”

“Peter is the transfer of the year in the team,” Jalsovszky Managing Partner Pal Jalsovszky added. “Peter’s arrival is a true reflection of our commitment to raising our litigation team to the level of the leading law firms in the area. And Peter’s experience in drafting the New Civil Code of Hungary will bring invaluable added professional expertise to the firm.”