Hungary

485. Hungary can legally issue the following four types of rulings within the scope of the transparency framework: (i) preferential regimes;1 (ii) cross-border unilateral APAs and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles; (iii) permanent establishment rulings; and (iv) related party conduit rulings.

486. For Hungary, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2014 but before 1 April 2016; or (ii) on or after 1 January 2010 but before 1 January 2014, provided they were still in effect as at 1 January 2014.

487. In the prior years’ peer review reports, it was determined that Hungary had not used the best efforts approach to identify potential exchange jurisdictions, meaning that Hungary had only identified potential exchange jurisdictions for around half of the past ATRs, although it had identified most potential exchange jurisdictions for APAs but not necessarily the ultimate parent company jurisdiction. Therefore, Hungary was recommended to continue to apply the “best efforts approach” to identify potential exchange jurisdictions for all past rulings.

488. During the year in review, Hungary has not been able to take additional steps. As such, the recommendation remains.

489. For Hungary, future rulings are any tax rulings within scope that are issued on or after 1 April 2016.

490. In the prior year peer review report, it was determined that Hungary’s undertakings to identify future rulings and all potential exchange jurisdictions was sufficient to meet the minimum standard. Hungary’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

491. In the prior years’ peer review reports, it was determined that Hungary’s review and supervision mechanism was sufficient to meet the minimum standard. Hungary’s implementation in this regard remains unchanged, and therefore continues to meet the minimum standard.

492. Hungary has met all of the ToR for the information gathering process except for applying the best efforts approach for past rulings (ToR I.4.2.2) and Hungary is recommended to continue to apply the “best efforts approach” to identify potential exchange jurisdictions for all past rulings.

493. Hungary has the necessary domestic legal basis to exchange information spontaneously. Hungary notes that there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard.

494. Hungary has international agreements permitting spontaneous exchange of information, including being a party to the (i) Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol (OECD/Council of Europe, 2011[4]) (“the Convention”), (ii) the Directive 2011/16/EU with all other European Union Member States and (iii) bilateral agreements in force with 81 jurisdictions.2

495. In the prior year peer review report, it was determined that Hungary’s process for the completion and exchange of templates was sufficient to meet the minimum standard. Hungary’s implementation in this regard remains unchanged and therefore continues to meet the minimum standard.

496. For the year in review, the timeliness of exchanges is as follows:

497. During the year in review, Hungary experienced some delays for future rulings. Hungary explained it was due to a review at the beginning of 2020, 3 more future rulings (5 exchanges) are required to be exchanged. Hungary conducted these outstanding exchanges at the beginning of April 2020. Hungary is recommended to ensure that all information on future rulings is exchanged as soon as possible.

498. Hungary has the necessary legal basis for spontaneous exchange of information, a process for completing the templates in a timely way and has completed all exchanges. Hungary has met all of the ToR for the exchange of information process except for the timely exchange of information on future rulings (ToR II.5.6) and Hungary is recommended to ensure that all information on future rulings is exchanged as soon as possible.

499. The statistics for the year in review are as follows:

500. Hungary offers an intellectual property regime (IP regime)3 that is subject to the transparency requirements under the Action 5 Report (OECD, 2015[1]). It states that the identification of the benefitting taxpayers will occur as follows:

  • New entrants benefitting from the grandfathered IP regime: Taxpayers that are new entrants to the IP regime can be identified in the tax return. The first tax returns containing information on new entrants have been filed after the relevant date from which enhanced transparency obligations apply. Hungary is currently trying to identify new taxpayers by analysing previous tax returns of taxpayers who have opted into the grandfathered regime and intends to exchange the information on a retroactive basis as soon as it has identified the new entrants (i.e. both new taxpayers and new IP assets). It is noted in Hungary some new entrants resulting in 14 exchanges have already been identified during tax audits for the year in review.

  • Third category of IP assets: not applicable as the regime does not allow the third category of IP assets to qualify for the benefits.

  • Taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption: not applicable as the regime does not allow the nexus ratio to be treated as a rebuttable presumption.

501. Hungary is recommended to continue its efforts to identify and exchange information on all new entrants to the grandfathered IP regime as soon as possible (ToR I.4.1.3).

References

[3] OECD (2017), BEPS Action 5 on Harmful Tax Practices - Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD Publishing, Paris, http://www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparency-framework.pdf.

[1] OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264241190-en.

[4] OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264115606-en.

Notes

← 1. With respect to the following preferential regime: IP regime for royalties and capital gains.

← 2. Parties to the Convention are available here: www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm. Hungary also has bilateral agreements with Albania, Armenia, Australia, Austria, Azerbaijan, Bahrain, Belarus, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, China (People’s Republic of), Chinese Taipei, Croatia, Cyprus, Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Greece, Hong Kong (China), Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Kazakhstan, Korea, Kosovo, Kuwait, Latvia, Liechtenstein, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldova, Mongolia, Montenegro, Morocco, Netherlands, North Macedonia, Norway, Oman, Pakistan, Philippines, Poland, Portugal, Qatar, Romania, Russia, San Marino, Saudi Arabia, Serbia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sweden, Switzerland, Thailand, Tunisia, Turkey, Turkmenistan, Ukraine, United Arab Emirates, United Kingdom, United States, Uruguay, Uzbekistan and Viet Nam.

← 3. IP regime for royalties and capital gains.

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