Category: Hungary

The European Court of Justice (ECJ) confirmed once again that VAT deduction is fundamental part of the VAT mechanism and thus can only be narrowly restricted or limited.

The most recent ECJ ruling in the case of C-334/20 concerns a Hungarian manufacturing company which entered into an agreement with a marketing company to buy advertising space (i.e. stickers) on a car participating in Hungarian Speed Championship. The Hungarian tax authority challenged the VAT deduction on the advertising services on the basis that the price of the advertising service disproportionate (based on expert valuation, while the advertising space on both sides of the car was small) and it did not generate additional taxable output for the company. It is important that the Hungarian tax authority did not claim the transactions to be of ‘fictious’ nature.

Further to the request for preliminary ruling from the Hungarian Court, however, the ECJ, in line with its settled case law, considered the case from the perspective of the principle of tax neutrality.

The ECJ established that the services rendered are not expressly excluded from the scope deduction (e.g. luxury expenditure, representation), the mere fact that those are not directly linked to an increase in turnover does not mean that they do not serve business purposes. The ECJ also reminded that the precondition of VAT deduction is the direct and immediate link between the input transaction and the taxable activity of the company (either specifically or generally), i.e. that the cost is included in the price of the taxable transactions of the company.

Furthermore, for VAT deduction – as a general rule between independent parties – the consideration actually paid should be considered as basis, not the market price necessarily. Thus, the ECJ concluded, the mere fact that the cost of the service is excessive or the advertising services not directly lead to an increase in revenues does not preclude VAT deduction as costs incurred in relation to the business activity of the taxpayer.

As usual, it is still up to the national court (of Hungary) to establish the general preconditions of VAT deduction (direct and immediate link with the taxable activity) and the classification as business costs (whether the use of stickers actually aimed promoting the products and services marketed).

By Balint Zsoldos, Head of Tax, KCG Partners Law Firm

Mihály Varga, Minister of Finance of Hungary has introduced many changes in tax legislation as of 1 January 2022 with an estimated HUF 750 billion to be left at the private sector. According to the statement of the Minister, tax reductions became achievable, as the economic growth of Hungary rose over 6,1%.

The greatest change is the reduction of the Social Contribution Tax, that is going to be lowered to 15% from 17.5% and the abolishment of vocational training contribution (that was previously 1.5%). The Small Business Tax is also lowered from 11% to 10%, while the amount of the Local Business Tax still remains at 1% for the year 2022. These reductions were asked from the representatives of small businesses, as they argued that it would be extremely difficult for them to cover the increased minimum wage from 1 January 2022.

The Hungarian Government also launched a programme for young employees under the age of 25, which will exempt employees under the age of 25 from personal income tax from 1 January 2022. According to official calculations, the wage of an average 20-year-old would increase with more than EUR 1,300 yearly. This advantage is expected to draw more of the younger generation to the labour market.

According to the Minister of Finance, these changes should further facilitate economic growth and investments from abroad, as the burden on families, employees as well as on employers are lowered drastically since 2010.

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

A Hungarian company in the field of the construction industry is constantly posting workers to different member states of the European Union. According to the labour agreement of employer and employees the applicable law is Hungarian, however, the mandatory health and safety provisions of the place of work based on the Directive 96/71/EC of the European Parliament and of the Council of 16 December 1996 concerning the posting of workers in the framework of the provision of services – if these have a stronger protection – must be applied.

The employment of the posted employees takes place within a so-called working timeframe. The employees work 3 weeks abroad while they are posted and stay 1 week at home. During this 1 week staying home period the employees are free and don’t have to perform work, the employer compensates the overtime hours as free time.

During the posting of the employees abroad numerous practical questions arise about the mandatory health and safety provisions of the place of work. Such questions include working time, annual leave, minimum wage, safety at work, etc.

Regarding the working time: while the Hungarian labour law basically allows a daily working time of 12 hours employees posted for instance to Germany may work only 10 hours in a day, so in this case the German mandatory health and safety provisions are stricter and must be mandatory applied.

Concerning the applicable law of annual leave: if it is about the number of leave days the question can be easily answered. For the period of posting is the law applicable which ensures more leave days for the employees. But what is the case if workers want to work instead of taking annual leave, therefore earning money, and having leave compensated?

In that case the rules shall be applied which protect the employees better. In case of the posting of Hungarian employees to Germany the following applies:  

According to the Hungarian regulation leave days shall be granted by the employer and compensation is given only in exceptional cases (termination of the labour relationship for example). 

In contrast of the regulation of the place of work in Germany the claim for leave is allowed by the employer however, the employee shall take the leave whereby the claim for the leave can be lapsed in certain cases (the compensation of the leave is conditionally possible).

And which law ensures a higher protection effect? The reason of the Hungarian regulation with the mandatory granting of the leave enables the relaxing and healthy regeneration of the employees which in our opinion better protects the employees.

By Daniel Feher, Partner, Feher Legal & Tax, Alliott Global Alliance

Schoenherr Hungary’s Head of Real Estate Laszlo Krupl interviews HB Reavis Country Legal Director Viktor Fonth.

Krupl: Please tell us about your legal background leading to HB Reavis.

Fonth: I studied law at ELTE Law School in Budapest from 1993 to 1998. After an MBA in finance and management, my professional career started at PSZAF – the Hungarian Financial Supervisory Authority. Between 2000 and 2007, I was in-house counsel at Corvinus International Investment Ltd., a company directing the foreign capital investments of Hungarian companies. Since 2007, I have been the in-house legal counsel at HB Reavis, and, when the team expanded, I became responsible for leading the local legal team. Between 2014 and 2017, during the group’s planned expansion in Turkey, I was also responsible for the legal agenda of this country, mapping the local legal environment, supporting project preparation, and having regular contact with our local colleagues and Turkish legal advisors.

Krupl: What does HB Reavis do, and how large is the company in Hungary and around the world?

Fonth: There are over 700 HB Reavis employees across Europe. We are active in the CEE region, Germany, and the UK. Although we delivered more than 1.3 million square meters in several real estate subsectors, HB Reavis is not only a simple real estate developer but rather a  creative and flexible workspace provider. With this approach, we believe we have been pioneers on the newest trends on the office market and provide our clients with a comprehensive service that helps them to adapt to the needs of their employees. We also offer an international co-working platform, flexible leases, and strategic workspace consultancy.

Krupl: Why did you decide to join HB Reavis?

Fonth: At Corvinus International Investment Ltd. we supported Hungarian companies in their investments outside Hungary and thus could work in an international environment and had insight into various asset classes. We invested as a minority owner in several projects with a buy-out obligation of our Hungarian partner, collectively being majority shareholders in the target companies. The most interesting investments were our hotel investments in Sovata, Romania, and Herceg Novi, Montenegro, but we also had a sawmill and a dairy factory in Slovakia and a bread factory in Bucharest. At that time real estate became more and more prestigious as an investment tool. This and the possibility to continue to work in an international environment were the reasons I joined HB Reavis in 2007.

Krupl: That was around 14 years ago and during the financial crisis in 2008 – 2009.

Fonth: At that time, we had more than 10 projects on our radar in Hungary at various preparatory stages, 2 projects just before or very close to signing. From the first signs of the financial crisis in 2009, the real estate industry and, of course, the whole world slowed down and, from that moment, unfortunately, there were no (new) projects for a while. Honestly, at that time, I felt that only a car dealership or hotel would be worse than working in the real estate sector. During the crisis, many real estate developers exited the Hungarian market. Luckily, HB Reavis was dedicated to continuing its operations in the country. In 2014 the Vaci Corner Offices project was sold off to Zeus Capital Management with very high occupancy. Since then, we have experienced a great level of uplift.

Krupl: Which one was the HB Reavis projects that you are proudest of?

Fonth: Besides our first real estate development project, the above-mentioned Vaci Corner Offices, the winner for me is undoubtedly our Agora Budapest project. This project (winning, alongside a number of other awards, the Planned Project of the Year – Commercial and Community Space of the Year awards at the Office of the Year 2017 competition, and designed as a WELL Gold, BREEAM Outstanding, and BREEAM Communities standard development) is a truly new business and lifestyle hub in the heart of the Vaci ut office corridor.

Size indeed matters, so my second candidate would be our unique project in central Warsaw –Varso Place – which is the tallest building in the EU.

London always had and has a special place in my heart so as a bronze medallist I would mention the One Waterloo building. This project is one of this amazing capital’s most important redevelopment projects and it is also the fourth and largest investment of our group in London to date.

Krupl: As a real estate developer, HB Reavis is active in the office and retail sectors. Do you see any new trends in these sectors?

Fonth: The COVID-19 pandemic undoubtedly affected the entire Hungarian real estate sector with significantly different consequences on the different products classes and market players. Currently, industrial and logistics properties seem to be more in the focus, as I see it there is a clearly increasing appetite for both “big boxes” and city logistics products.

Office space demand seems to be recovering with an increase in occupier activity, with flexibility and client-focus gaining importance in leasing decisions. The new ways or “standards” on hybrid working are still under formalization for most tenants.

By now most retail units have reopened under a regular regime, there is a big question mark in connection with fourth and potentially upcoming pandemic waves. In general, retailers are still trying to save and operate their pre-COVID business with lessors trying “to trim and not slaughter the sheep,” i.e. in selected cases with accepting reasonable (temporary) compromises on lease conditions vis-a-vis cooperative tenants.

Krupl: What are the pros and cons of going in-house rather than staying at an international law firm?

Fonth: Throughout my career, I worked with numerous attorneys from international law firms. An international law firm gives you a deep knowledge of the law and teaches you how to think systematically and work long hours. This attitude can be a great asset for working in-house. Still, I prefer in-house. Although you are not able to discuss each legal question internally, you are on the front lines and can’t be any closer to the business.

Krupl: What are your roles both locally and on the group level? Describe your management style.

Fonth: Being in-house at HB Reavis I head a team of four. I think I’ve built up an effective collaboration within our local legal team as well as the other workstreams. Since I have been with the firm for over 14 years, this enables me to oversee its entire organization. The best thing about being in-house is the involvement in each development cycle.

Krupl: How did and does COVID-19 affect you in terms of workload and work-life balance?

Fonth: Workload? In a nutshell and without complaining: a significant increase. Besides the daily tasks related to the completion and commercialization of our two offices buildings (the Agora Tower and Agora Hub) especially during COVID-19-times, I was also trying to provide up-to-date and (on best effort basis) proactive help to the team in legal relations of the pandemic (legal updates on restrictions, legal reports, authority relations, compliance (GDPR), etc.). The increase was also partly due to the unexpected relationship management with (mostly) retail tenants (lease renegotiations, discount structures, partner correspondence, and eventual terminations) that was unthinkable before COVID-19.

In connection with work-life balance: it’s hard to imagine a greater boon for the usually introverted lawyers than a sublimely undistracted home office. However, if the employee does not interpret this as extra leave, after a year and a half working on average 20-30% longer hours per day without travel time and social contacts; also, even in a lucky situation (without the daily need of home practices related to digital education of one’s kids) was at the end very difficult to sustain.

Krupl: Who was most important in mentoring you in your career and what did you learn from that person?

Fonth: Unfortunately, or fortunately, throughout my career, I have had to work more as an independent lawyer, for a long time without a legal team and a real dedicated mentor. It has been a rewarding task to gain respect as a sole practitioner and to develop a smooth day-to-day workflow in workplaces where all my colleagues were and are business managers, engineers, construction specialists, finance experts, etc. Fortunately, as I mentioned above, I have had the opportunity to work with agile lawyers, partners in international law firms, and also heads of legal within the group where I have always had the opportunity to discuss legal issues at a high professional level.

Krupl: What are your other fields of interest besides law. What do you do outside work?

Fonth: To be honest, when I was at university, I wasn’t sure about becoming a lawyer as I had various other interests: writing poetry and prose, amateur filmmaking, acting in our university theatre group Biztos Bukas (in English: Certain Downfall). For a couple of years, I was the art director of the University Theater (in Hungarian: Egyetemi Szinpad). As to amateur filmmaking, we even won the main prize at the 42^nd Hungarian Independent Video and Film Festival in 1995. I regularly published articles in the university journal and had a rap band (where, as one of the soloists, I was responsible for the lyrics and choreography as well) that performed some concerts at university.

Those all have now been partially replaced by parenting, reading, a never-ending love for films and theatre, and following political talk shows. When I am invited, I am happy to present or be a panelist in (legal) conferences partly in connection with the purpose and challenges related to an in-house position and AI in law. When traveling in the car – if I can – I listen to Hungarian and foreign stand-up performers.

Originally reported by CEE In-House Matters.

Allen & Overy has advised Eurowag on its acquisition of WebEye Telematics. Satori, Lutter and Partners advised the seller.

Closing is expected in the first quarter of 2022, pending regulatory approval and merger clearance.

Founded in 1995, Eurowag is a pan-European integrated payment and mobility platform focused on the commercial road transportation industry.

WebEye is a Hungarian-owned company providing fleet management solutions in 12 countries through local support.

“I am pleased to announce the acquisition of WebEye in line with the strategy we set out at the time of our recent IPO and further expanding our payments and mobility platform,” Eurowag CEO Martin Vohanka commented. “With integrated services, we aim to reduce the impact of our industry on the environment. The solutions allow to reduce the ratio of trips with an empty load and improve road safety, as the fleet operators can have a thorough overview of the conditions of their vehicles.”

“Joining forces with Eurowag opens doors to new markets and offers our customers access to a wide range of services and solutions for their businesses to thrive,” WebEye CEO Pal Nemeth added. “Eurowag’s integrated digital platform helps transport operators make their business more efficient and more profitable while making the lives of truck drivers easier.”

The Allen & Overy team was led by Senior Associate Jakub Cech and included Managing Partner Prokop Verner, Counsels Balazs Sahin-Toth and Roxana Ionescu, Senior Associate Attila Komives, and Junior Lawyer Tereza Veverkova.

The Satori, Lutter and Partners team consisted of Managing Partner Anna Satori and Partners Tunde Nemeth and Istvan Gurtl.

In 2018, the Hungarian Constitutional Court established in its decision that there was an infringement of the Fundamental Law by omission in connection with the entry into force of the amendment of certain acts relating to land-compensation. The issue was that the legislator abolished the rules on the auctions of agricultural land, so that the beneficiaries still had the purchase right serving the assertion of the compensation claim. The Constitutional Court called on the Parliament to fulfil its legislative duties by 31 December 2018.

Now, a deed has been submitted to the Parliament on the settlement of the situation of persons waiting for compensation in the operation area of the former Rozmaring Agricultural Cooperative. According to the reasoning of the deed, in case of Rozmaring Agricultural Cooperative (as only one in the country) the land grounds have not been formed. Under the deed, the Government Office of Pest County is the competent authority for the establishment of the entitlement to compensation. The beneficiary may submit its application for the establishment of its entitlement to compensation and for the determination of the golden crown value corresponding to the compensation amount to the land registry by 31 March 2022. According to the deed, the person entitled to compensation may choose the method of compensation. He/she can choose to receive either monetary compensation or a land grant as compensation by 30 June 2022 at the latest. The amount of the monetary compensation is HUF 50,000 per gold crown entitlement. The decision establishing the entitlement will also establish the value of the compensation entitlement in gold crowns.

An application for compensation in the form of a land grant may be submitted to the body responsible for the management of the National Land Fund by the beneficiary or his/her heir. Compensation in the form of a land grant may be requested by any person who, on the basis of the decision, has received at least 15 golden crowns. In case the value of the compensation entitlement does not achieve 15 golden crowns, only monetary compensation is possible.

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

From 2022 the new general gross minimum wage will be HUF 200,000 (approximately EUR 550).

According to the announcement made on 4 November 2021, the gross general minimum wage would be increased to HUF 200,000 (per month), while for more qualified positions (jobs requiring at least a secondary education or a secondary vocational qualification) the so called guaranteed wage minimum will reach gross HUF 260,000 (per month). In both cases the reference minimum wages apply to full-time employees (at least 36 working hours a week).

As part of the minimum wage package deal, the contributions imposed to the employers will be cut with a sum of 4%: social contribution tax is decreased from 15.5% to 13% and former vocational training contribution of 1.5% will be abolished.

The announced changes also imply that while the net amount of the minimum wage and guaranteed wage minimum amounts available for the employees will increase with almost 20%, the contributions paid by the employers will be actually slightly lower than were in 2021. The net amount of the minimum wage will rise from HUF 111,321 to HUF 133,000 and of the guaranteed wage minimum from HUF 145,635 to HUF 172,900 from 2022. It also follows that for the amounts (e.g. childcare allowance, minimum contributions by self-employed and companies, various thresholds) that are linked to the minimum wage will be the increased amounts should be considered from 2022, accordingly.

By Balint Zsoldos, Head of Tax, KCG Partners Law Firm

Lakatos, Koves and Partners has successfully represented Facebook Ireland before the Hungarian Supreme Court Kuria.

According to LKT, “mid-November the Hungarian Competition Authority published on its website Kuria’s long-awaited final judgment which ruled that Facebook’s earlier statement that its service is ‘Free and always will be’ was lawful. The Kuria’s judgment was preceded by the Budapest Metropolitan Court’s first instance judgment, which vacated the HCA’s decision issued in December 2019. In that decision, the HCA ruled that the free statement misled consumers, essentially because Facebook monetizes users’ personal data to serve them targeted advertisements. If that’s the case, the statement that the Facebook service is ‘free’ is not valid and misleading, as it distracts consumers’ attention from what happens with their data. The HCA imposed a record fine at the time, amounting to EUR 3.4 million.”

According to the firm, “the HCA’s case was important because it raised specific legal questions around price communication in zero-priced business models operating based on consumer data. The Kuria’s ruling is equally an important addition to what ‘price’ and ‘free’ mean in this context. The Kuria held that any type of consideration can be caught as ‘price’ which is a disadvantage for the consumer, provided firstly that it is not an obvious feature imminent in the nature of the product, also that it is direct and it is significant, i.e. capable of impacting consumer’s decision. With respect to the statement that Facebook’s service is free, these conditions were not met. The Kuria held that in a digital zero-priced service, the ads viewed by consumers are targeted, does not represent a disadvantage for consumers, compared to what is traditionally imminent in zero-priced services, i.e. viewing ads.”

LKT’s team was led by Partner Eszter Ritter.

Assessing the damages resulting from competition law infringement is one of the main focal points of private antitrust litigation. However, in almost all cases, the assessment of damages and causation requires an expert with specialized expertise. Below, we review the methods available in the Hungarian legal system for providing expert evidence. In particular, we will show that the law only provides limited options in cases requiring special expertise. Moreover, this limitation may be even more pronounced due to the seemingly obscure nature of case law interpretations related to private expert evidence – interpretations that are currently being formulated.

The new Hungarian civil code provides two options for expert evidence to the party on whom the burden of proof lies. Such a party may prove a disputed fact with (1) an expert appointed by the court or (2) a private expert engaged by the party itself.

According to the Hungarian act on experts, two types of experts may act as an expert: As a general rule, (1) forensic experts listed in the Hungarian register of forensic experts may be invited to act in the field indicated by them in the register. However, (2) if there is no registered forensic expert in the given field, or if the registered forensic expert is unable to act due to temporary absence or professional reason, or if the given field is not included in the list of fields that can be indicated in the register of forensic experts, a so-called ad hoc expert may act. The ad hoc expert is an expert who has expertise appropriate to the given topic and is able to provide forensic expertise, but who is not a registered forensic expert listed in the register.

In private antitrust litigation, the assessment of damages and causation is often a special question for which there is no registered forensic expert or there are only a few who are unable to act due to different reasons, and thus it becomes necessary to invite an ad hoc expert in such cases.

Litigators generally prefer private expert evidence since a party has already been able to ascertain the suitability of a private expert engaged by them, in contrast to a forensic expert who they do not know. It is no different in the case of private antitrust litigation. Since in most private antitrust litigation cases only an ad hoc expert can act due to the specialty of the relevant professional issue, evidence usually can only be (or needs to be) collected through the framework of private expert evidence from an ad hoc private expert.

However, a legal position has arisen which states that only registered forensic experts shall act as private experts and ad hoc experts shall not. This view, however, is more than questionable. First of all, this approach may even make private expert evidence impossible, by not allowing ad hoc experts with the appropriate expertise for a given question to act – if there is no registered forensic expert for the given question, or if there are only a few registered forensic experts for the given question who are unable to act due to different reasons. This obviously could not have been the intention of the legislator.

Secondly, by allowing the use of ad hoc experts only in the event of appointments by courts, the balance between the evidence taking by experts appointed by the court and the evidence taking by private experts engaged by parties is broken. No such distinction can be deduced from the relevant legislation. Finally, since the above idea does not allow the invitation to unlisted experts to act as a private expert – hence it favors the party choosing the evidence taking by experts appointed by the court over the party opting for the evidence taking by private experts they engaged themselves – the above idea may also impede the application of the equality of arms principle.

It is still an open question how this legal issue will be handled in Hungarian practice in the future. However, it seems necessary to review the above current legal position on private experts and to introduce a more sophisticated approach to interpret the current legislation.

By Orsolya Kovacs, Partner, and Lucia Detvay, Associate, Nagy es Trocsanyi

This Article was originally published in Issue 8.9 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Hungarian State unlawfully collected a sizeable amount of VAT from pharmaceutical companies ruled the European Court of Justice (ECJ) in a recent preliminary ruling procedure, initiated by Boehringer Ingelheim against the Hungarian tax authority.

Basing its decision on the principle of fiscal neutrality, the ECJ stated that “the amount collected by the tax authorities must not exceed the amount paid by the final consumer, i.e. Member States are obliged to reduce the taxable amount in all cases where the taxable person does not receive the whole or part of the consideration after the transaction has been completed”.

The judgement may affect numerous pharmaceutical companies in Hungary, since the background of the case lies in the reimbursement system of medicinal products, one method of which is based on a contractual relationship (so called subsidy volume contract or “támogatás volumen szerződések” in Hungarian) between the pharmaceutical company and the National Health Insurance Fund of Hungary (NEAK). Following the ECJ judgment, it is now clear that pharmaceutical companies are entitled to reduce their VAT with the amount paid to the NEAK under these contracts.

The ECJ also ruled in a separate question that VAT reduction must not be conditional on the availability of an invoice where no such invoice has been issued and where the completion of that transaction can be proved by other means, such as the payment notifications issued by the NEAK.

As a result of this decision by the ECJ, the Hungarian tax authority became obliged to reimburse approximately one million Euro to Boehringer Ingelheim.

Further to this recent decision, Hungarian pharmaceutical companies that had entered into similar subsidy volume contracts may potentially seek reimbursement of the VAT amount they have overpaid within the statutory limitation period (i.e. over the past five years) within a six-month window via a special self-revision.

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