The provisions of the Corporate Tax Act on sports sponsorship entered into force on 1 July 2011. Taxable persons providing financial support for team sports with a strong visual appeal (soccer, handball, basket ball, water polo and ice hockey) need not increase their pre-tax profit by the amount of the support provided, i.e. it is recorded as an eligible cost, and are entitled to tax allowances in accordance with the conditions set out in the law.
Sponsorship for team sports with a strong visual appeal can be granted under various entitlements depending on the entity receiving financial support (a national association for a given type of sports, an amateur or professional sports entity that is a member of such national association, a public interest foundation established for the purpose of development of team sports with a strong visual appeal and a public entity with certain decision-making powers and a right to disburse funds). Subject to the status of the sponsored entity, support can be granted for the following entitlements:
- the grooming of future athletes,
- staff costs (personnel costs),
- investments in and upgrading of tangible assets,
- upgrading of infrastructure required to meet safety criteria,
- education/training-related tasks,
- championship/tournament-related costs.
Companies may deduct the amount of the tax allowances from the amount of the tax payable on the basis of a sponsorship certificate issued by the entities eligible for sponsorship. The certificate also indicates the amount of the financial support.
If you find you would like to avail yourself of this opportunity of “double allowance”, for further details please contact consultants of BDO. (tax@bdo.hu; 1/235-3010)
The European Commission has called on Hungary to amend its VAT legislation governing the open-end leases of passenger vehicles
The European Commission has formally requested Hungary to amend its VAT legislation which does not allow lessees to benefit from VAT deductions in open-end leases of passenger vehicles.
The restrictions on the right of deduction concerning the leasing of passenger cars were amended by the VAT Act applicable from 1 January 2008. The new VAT Act allows lessors to deduct VAT on the purchase of passenger cars purchased for leasing purposes if the passenger car purchased are used entirely or chiefly for leasing or letting by the lessor. Concurrently, the new Act terminated the right of lessees to deduct VAT on the open-end leases and renting of passenger cars.
According to the Commission’s supporting argument, the EU VAT Directive 2006/112/EC gives taxable persons the right to deduct the VAT charged on goods purchased and services received. It also authorises Member States to restrict this right to VAT deduction only if these provisions were in place at the time of accession to the EU. As the Hungarian provision in question was introduced on 1 January 2008, i.e. after Hungary's accession to the EU in May 2004, it is contrary to EU rules.
The Commission's request takes the form of a reasoned opinion, which is the second step of the EU’s infringement proceedings. In the absence of a satisfactory response within two months, the Commission may refer Hungary to the EU's Court of Justice.
We will be monitoring future developments in the above case.
New legislation on the environmental product fee
Act LXXXV of 2011 on the environmental product fee has been published. The full text of the law was published in the 4 July 2011 issue of the Hungarian Gazette.
The new law fundamentally transforms the current system of waste management. By terminating the operation of the entities that used to co-ordinate recycling, it establishes National Waste Management Agency Non-profit Kft. (Hungarian abbreviation: OHÜ), which will be solely responsible for intermediation in waste management.
Exemptions and allowances are removed. The new law introduces the category of distributors of small quantity packaged goods. As a result, the majority of the taxpayers only have to file their statement once a year and pay a low flat rate.
The effective date, in regard to OHÜ, of the new legislation on the environmental product fee is 1 September 2011, and substantive regulations will enter into force on 1 January 2012. Concurrently, Act LVI of 1995, i.e. the old law will be repealed. From 2013 the deadlines of tax return submission will be changed.
In the event you have further question related to the above issue, please contact consultants of BDO. (tax@bdo.hu; 1/235-3010)
A new treaty between Hungary and Denmark on the prevention of double taxation
Signed on 27 April 2011, a treaty between the Republic of Hungary and the Kingdom of Denmark on the elimination of the double taxation of taxable income and the prevention of tax evasion (Act LXXXIII of 2011) was promulgated in the 75th issue of the Hungarian Gazette.
The new treaty also means a multiple modification of the old one regarding a number of important issues, and takes into account the effective OECD Model Convention, e.g. it no longer contains rules governing the taxation of income from independent personal services.
The following is a non-exhaustive list of the most important changes:
- In the event of construction, building and instalments already 12 months (instead of the 24 months under old treaty) will create a fixed establishment.
- The sale of shares over 50% of whose value is from real property can also be taxed according to the laws of the country where the real property is situated.
- Regarding the “triple conditions" of income from employment, the 183 days is to be examined for any 12-month period rather than a calendar year.
Attention should also be paid to the fact that the percentage thresholds of certain cases of dividend taxation have changed, the concept of “interest” has been clarified and a section intended to avoid “double non-taxation” arising from a different interpretation of the treaty has been incorporated into the provisions.
If you find you have questions in connection with the new treaty or any one of your employees may be affected by the changes, please contact consultants of BDO. (tax@bdo.hu; 1/235-3010)
A new treaty between Hungary and Germany on the prevention of double taxation
Signed on 28 February 2011, a treaty between the Republic of Hungary and the Federal Republic of Germany on the elimination of the double taxation of taxable income and assets and the prevention of tax evasion (Act LXXXIV of 2011) was promulgated in the 75th issue of the Hungarian Gazette.
The new treaty also means the multiple modification of the old one regarding a number of important issues, and takes into account the effective OECD Model Convention, e.g. it no longer contains rules governing the taxation of income from independent personal service.
The following is a non-exhaustive list of the most important changes:
- When determining residency, it is important that nationality should also be examined in the future.
- The sale of shares over 50% of whose value is from real property can also be taxed according to the tax laws of the country where the real property is situated.
- The sale of moveable assets qualifying as the business assets of a fixed establishment located in another state can be taxed in this other state.
- The “triple conditions" of income from employment do not apply to remuneration for employment within the framework of professional labour hire, and the 183 days is to be examined for any 12-month period rather than each calendar year.
Attention should also be paid to the fact that the percentage thresholds of certain cases of dividend taxation have changed, the concept of “silent partner” is no longer in use, the concept of “interest” has been clarified, the definition of non-fixed establishment has been supplemented and the section intended to avoid “double non-taxation” arising from a different interpretation of the treaty has been incorporated into the provisions.
If you find you have questions in connection with the new treaty or any one of your employees may be affected by the changes, please contact consultants of BDO. (tax@bdo.hu; 1/235-3010)
Restriction on the right to deduct VAT – Request for preliminary ruling
Hungarian county courts has filed a request for a preliminary ruling from the Court of Justice of the European Union (ECJ) on two occasions in regard to a proceeding launched to investigate the matter of the restriction imposed by the Hungarian Tax Authority on the right to deduct VAT.
On one occasion the Tax Authority deprived the taxable person of his right to deduct VAT saying that out of the invoice he was not in possession of any document from the issuer of the invoice which certifies that it was in possession of the product, and it was entitled to supply it or satisfied its declaration obligations. The questions addressed to the European Court of Justice are (1) whether the Hungarian Tax Authority may require the recipient of the invoice to have such other documents that enable him to prove the law-abiding conduct of the issuer of the invoice and (2) whether the concept of “due diligence” under the Hungarian VAT Law is compatible with the principles of neutrality and proportionality.
On the other occasion the Hungarian Tax Authority restricted the taxable person’s right to deduct saying that the issuer of the invoice cannot demonstrate the legality of employing further subcontractors. The questions addressed to the European Court of Justice are (1) whether the Hungarian Tax Authority can legally prohibit the reclaim of VAT if the identity of further subcontractors employed by the issuer of the invoice cannot be established, and (2) whether the authority must prove in the proceeding that the taxable person either was aware of unlawful conduct of the subcontracting companies or possibly engaged in.
We will closely follow the requests for preliminary rulings as they progress into further stages.