Corporate group taxation
08 October 2020
Important deadline is approaching
One of the most significant changes in the tax year of 2019 was the introduction of the possibility for choosing group taxation for corporate income tax purposes. From this year on, with the permission of the Hungarian State Tax Authority, companies have the opportunity to choose corporate group taxation. In case the financial year of the company is identical to the calendar year the application for creating a corporate tax group has to be filed to the tax authority between 1st November 2020 and 20th November 2020. In case of missing the deadline, companies have to wait one year with the filing of the application.
According to the Hungarian rules, those (at least two) companies may create a corporate tax group that meet – among others - the following conditions:
- Taxpayers that qualify as Hungarian residents
- The group members should be related parties due to having at least 75 percent voting right in each other or having another person who controls at least 75 percent of the voting rights in the group members
- The annual report of the group members should be prepared under the same accounting rules and the balance sheet date of the group members should be the same.
Since the condition for the same currency of accountancy has been ceased as of 24th July 2019, those companies may also apply for the corporate group taxation regarding 2021 that keep their books in a different currency (provided that they meet the other conditions of application as well).
What are the possible advantages of corporate group taxation?
In case of group taxation arrangement, members of the group may achieve cost and tax savings:
- The carry forward losses generated during the period of group taxation may be taken into account by the group, under certain conditions;
- During the period of corporate group membership, transfer pricing documentation obligation only applies at group level, i.e. for the intra-group transactions among the group members no documentation is needed (with a few exceptions)
- The members of the group are exempted from the transfer pricing adjustments for their intra-group transactions from corporate income tax point of view (exceptions may be made for pre-group transactions)
- The group is considered to be one single taxpayer for the purposes of tax relief; the group may benefit from the tax relief if one of the group members meets the conditions.
Since there is more than 1 month until the deadline expires, it is not too late for your company to consider the possibility of choosing corporate group taxation from 2021. However, it is important to note that for those companies whose financial year are identical to the calendar year, the application should be submitted between 1st November 2020 and 20th November 2020. The applications will be rejected by the Hungarian Tax Authority if the deadline is missed.
BDO tax advisors are pleased to be at your disposal with full-scope advisory work in this regard as well:
- Preliminary consultation and calculation regarding the available tax advantage
- Preparation and submission of the application/notification form
- Preparation of the obligatory record-keeping policy