In brief

What happened?

Domestic companies affected by the global minimum tax rules are subject to a notification obligation regarding the MNE group within 12 months from the start date of the tax year beginning in 2024. Based on the rule’s wording and the basic logic of the regulation, MNEs applying the Transitional country-by-country reporting (CbCR) Safe Harbour for Hungary are still required to fulfill the notification obligation. 

Why is it relevant?

Failure to submit the notification or submitting it late may result in the tax authority imposing a penalty of up to 5 million HUF (approx. $13,000 USD) on the affected companies.   

Actions to consider

Taxpayers should determine which entity is required to file the notification under Hungarian Pillar Two rules. For calendar-year companies the required notification date is December 31, 2024, as per the rules set forth in the Minimum Tax Act. 

Content of the notification

The notification must be submitted on a form provided by the National Tax and Customs Administration via the usual electronic method; this form is currently unavailable. 

Based on the draft autumn tax package published on October 17, companies subject to the Minimum Tax Act must include in the notification:

• Identification details of group members (e.g., company name, tax number),
• Their classification under the Minimum Tax Act, which requires considerations from a global minimum tax perspective. This classification is expected to include classifications such as joint venture, flow-through entity, permanent establishment, or excluded entity status of group members.
• Information on the ownership relationships among group members. 

Observation: Once the Notification form is released, taxpayers should further analyze the exact information required by the form. 

Additional Pillar Two considerations in Hungary 

Transitional CbCR exemption 

Taxpayers should consider that domestic group members can only apply the transitional CbCR Safe Harbour exemption if the CbC report itself meets certain conditions prescribed by the Pillar Two rules. 

Deferred taxation 

Deferred taxation can have a significant impact on the global minimum tax position. Therefore, assessing the upsides (or downsides) of applying deferred taxation under Hungarian GAAP will be needed as early as 2024, considering the specific transitional rules of the global minimum tax. 

Disclosure and provisioning of top-up taxes 

Note that while the first return for the global minimum tax is due 18 months after the end of the first tax year, any payable top-up tax must already be included in the financial statements of the financial year in question. This is contingent on the company making prior elections based on the global minimum tax legislation, including elections on GloBE income, covered taxes, or the allocation of QDMTT. 

QDMTT tax advance declaration and payment obligation 

In the autumn legislation package, the legislator introduced the reporting and payment system for QDMTT tax advances. For the domestic top-up tax, the group member must submit a tax advance declaration by the 20th day of the eleventh month following the last day of the tax year affected by the QDMTT and must pay the top-up tax. 

The amount of the QDMTT advance payment must match the expected total amount of QDMTT for the tax year. 

The proposed legislation also includes a provision stating that no late payment interest, tax penalty, or default penalty will be imposed on the QDMTT advance if the taxpayer has acted as expected in the given circumstances as the member of the MNE group.