November 2023
The Hungarian Ministry of Finance published on October 18 the draft legislation for public consultation to implement EU Directive 2022/2523/OECD Model Rules on the global minimum tax (GloBE). The draft legislation closely aligns with the OECD Model Rules, Commentary, and Administrative Guidance published thus far. The draft bill includes the full set of the Pillar Two charging provisions, including:
Takeaway: The complex Pillar Two legislation impacts the entire (global) business organization of in-scope companies. Companies should start analyzing the financial and administrative impact of these new rules on their business organization.
The draft legislation defines taxes that are considered covered taxes, i.e., taxes that can be taken into account for the purposes of GloBE effective tax rate (ETR) calculations. The non-exhaustive list includes: corporate income tax, local business tax, innovation contribution, and energy suppliers' income tax.
Observation: Local business tax and innovation contribution would not be recognized as income taxes for local GAAP purposes, which may impact CbCR safe harbor calculations.
Hungary aims to introduce a Safe Harbor QDMTT based on the financial statements that companies use for local statutory reporting purposes (this could be either Hungarian GAAP or IFRS based on local legislation).
Observation: For MNEs that have multiple Constituent Entities in Hungary that are using different accounting frameworks for their statutory financials, there appears to be a requirement to calculate their Top-up Taxes (if any) based on these different financial statements.
The proposed design of the QDMTT regulation follows the administrative guidance issued by the OECD, including the provisions on the allocation of covered taxes between Constituent Entities. Notably, controlled foreign company taxes levied on the foreign parent entities of Hungarian Constituent Entities would not be allocable to Hungary for the purposes of the ETR calculation for QDMTT purposes.
At present, Hungarian GAAP does not include a deferred taxation concept. Based on the draft legislation, a simplified and elective deferred tax notion would be introduced for Hungarian companies.
In addition to the currently available R&D tax allowance rules (under which a ‘super deduction’ is available on selected R&D expenditures for corporate income tax purposes), a new R&D tax credit is expected to be introduced, which aims to be a qualified refundable tax credit (QRTC) under the Pillar Two rules. Companies may elect between two types of R&D tax incentives; this election could have further effects on other covered taxes as well. When applying the newly introduced tax allowance, additional rules would preclude the taxpayer from applying a tax base allowance under the R&D title, either in local business tax or in social contribution tax.
The new R&D tax credit would come with certain limitations in contrast to the existing R&D tax base allowance. As for the recognized costs, the legislation narrows its range, as the direct costs related to certain contracted R&D services are not going to be considered eligible costs.
Observation: The rules of other tax credits currently available in Hungary, such as the investment tax credit, are not proposed to be amended. This may indicate that these credits would not be treated as QRTCs, and therefore, potentially could significantly reduce the ETR of the Constituent Entities.
Hungary operates an elective capital gains tax exemption regime, where investments held by Hungarian taxpayers can only benefit from the capital gains tax exemption if they have been registered with the tax authority upon their acquisition. According to the legislative draft, taxpayers subject to the global minimum tax would be given a one-time opportunity until February 28, 2024 to register their shares held that otherwise are not classified as registered shares.
On May 22, the House passed H.R. 1, proposing broad tax changes that could significantly impact certain tax-exempt organizations, private foundations, and universities.
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Overview of the House-passed H.R. 1, which encompasses significant tax law changes, increased funding for border security and national defense, and spending reductions affecting various federal programs.
The House of Representatives passed H.R. 1, known as the “One Big Beautiful Bill Act,” on May 22, 2025, with a narrow vote of 215 to 214.
