From 2017 the corporation tax rate is only 9%.

The Corporate Tax Act also sets out a minimum requirement as regards profit. If the company’s profit before taxes or its tax base do not reach this minimum, the company can choose between two options:

• it either pays the corporate tax on the minimum profit requirement, or
• does not pay it but completes a statement about the reasons for the loss-making (or insufficiently profitable) management (this usually increases the chance of being selected for tax audit).

The accounting pre-tax profit or loss can be amended by several items. There are items that simply do not allow certain costs and expenditures to be included in the tax base, while there are other items that remove certain revenues from it. We will summarise the most important such items below:

Items that increase the tax base (not recognised costs and expenditures):

• provisions for prospective expenses and obligations which are uncertain and cannot be defined exactly (contractual costs and expenditures that will be certainly incurred can be recognised as reducing the tax base)
• impairment loss claimed in connection with receivables providing that bad debts, the irrecoverability of which is verified by the liquidator, can be deducted from the tax base
• fines and late charges
• interest charged in addition to the undercapitalisation rules
• fees paid to CFCs
• costs and expenses that are not documented sufficiently or have not been certifiably incurred in the interest of business operations

Items that can be deducted from the tax base and other allowances

• the tax base can be reduced by up to 50% percent by losses claimed in the previous years (losses accumulated before 2015 can be accrued by 2025, whereas those accumulated after 2015 can be accrued for a maximum of five years)
• by 50% percent of donations given to priority non-profitto tertiary education institutions and organisations of major public benefit
• by the capital gains realised on notified shares (privilege of holding companies)
• by the revenues from the sale of notified intangible assets (e.g. royalties, licences, brand names)
• the amount placed into a reserve for development purposes, which must be used for investments in the following four years (essentially this functions as advance depreciation)
• accelerated 50% (or, in certain disadvantaged regions, up to 100%) write-off rate in corporate tax for a wide range of assets (e.g. IT tools, furniture, other machines and equipment)
• the value of new asset investments acquired by small- and medium-sized enterprises, up to the amount of the pre-tax profit (not exceeding HUF 30 million)

For a few years the Hungarian tax authority has paid special attention during tax audits to compliance with obligations concerning the documentation of transfer prices. The applicable methods are the following:

• comparative price method
• resale price method
• cost and income method
• transactional net profit method
• profit-sharing method
• any other method (if justified)

The requirements relating to documentation have been greatly simplified in the recent past. In the case of transactions below HUF 50 million, the market price does not have to be documented. In the case of certain services within a company group (IT, accounting, administration) simplified documentation can be prepared if certain conditions are met.

However, effective 2015, enterprises (persons) are defined as associates if they have the same management, regardless of the ownership structure.

The tax authority penalises violation of the rules on transfer prices with a higher than average fine.

Country by country reporting

On 1 December 2016 Hungary joined countries, which have already implemented Country-by-Country-Reporting. The regulations are currently in form of draft legislation.

The CbCR is intended to be base of a risk assessment performed by the tax authority, transfer-price adjustment should not occur based on the CbCR.

In Hungary firms are obligated to create CbCR in the following cases:

• the ultimate parent of a multinational company group is resident for tax purpose in Hungary,
• the Hungarian member of a multinational company group, when there is no CbCR obligation for the ultimate parent,
• if there is no parent company, which would be obligated to create CbCR on behalf of all member companies with tax residency in the EU.

Multinational company groups with consolidated revenues lower than EUR 750,000,000, are exempted from the report.

For the first time, ultimate parent companies with tax residency in Hungary are obligated to create the CbCR of a financial year beginning on or later than 01.01.2016 within 12 months. Hungarian members of the group have to provide data for the first time about the financial year starting on or later than 01.01.2017.

Member companies have to provide CbCR data for the Hungarian Tax Authority until the last day of the financial year beginning on or later than 01.01.2017, even if they are exempt from CbCR report as member of a multinational company group.

CbCR report with insufficient data may be subject of penalty up to HUF 20 million.

The Hungarian corporate tax system provides a wide range of tax allowances for different types of investments incl. building and construction, environment protection, job creation, R&D, sport etc. In addition, group corporate taxation is also available from 2019 for affiliated companies which have the same business year and accounting currency and use the same accounting principles (Hungarian GAAP or IFRS).