Report on corporate income tax information

30-07-2024

Tax

Hungary

corporate income tax, report on corporate income tax information, country by country report, CbC report

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Report on corporate income tax information 

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1  Introduction

In order to increase transparency of MNE Groups, the 4th version of the EU Directive on Administrative Cooperation in the Field of Taxation, the so-called DAC4 [1], has been in force from 3 June 2016, allowing Member States’ tax authorities to obtain information on MNE Groups’ structure, transfer pricing activities and certain transactions in and outside the EU. With this information, Member States will be able to take action against possible tax evasion, avoidance and artificial profit shifting. According to the law, the groups concerned must submit a Country-by-Country (CbC) report on their basic and financial data to the tax authority.

The Directive was implemented in the Hungarian legal system with effect from 31 May 2017. [2]

According to Directive 2021/2101 of the European Parliament and of the Council, increasing corporate transparency and public scrutiny is a priority, therefore, in addition to the exchange of information between Member States, it has become necessary to increase the possibility of public scrutiny of corporate taxes payable by multinational enterprises. To this end, the so-called public Country-by-Country report has been introduced, which must be made available on the reporting company’s website, as well. In Hungary, the corporate income tax information reporting obligation was introduced into the Act on Accounting with effect from 1 January 2023, which must be prepared for the first time by obligated entities for the financial year starting on or after 22 June 2024.

The content of the public Country-by-Country report overlaps significantly with the older CbC reporting. The fundamental difference between the two is that while the former is intended to promote transparency and public scrutiny of MNE Groups, the latter serves essentially the exchange of information between tax authorities.

In the following, we will discuss the details of the obligation to prepare the report on corporate income tax information required by the Act on Accounting.[3]

2   Companies subject to reporting obligations and cases of exemptions

2.1  The base case

2.1.1 Companies Required to Report

By default, ultimate parent companies and standalone companies, that are subject to the Hungarian Act on Accounting (even if they choose to keep their books in accordance with IFRS standards) and whose consolidated revenue exceeded HUF 275 billion for two consecutive financial years are obliged to prepare and publish report on corporate income tax information.

Attention: The „Report on corporate income tax information” section of the Act on Accounting does not give instructions how income should be converted into forints in case of foreign currency bookkeeping. As a general provision, however, the Act states, that in the case of foreign currency bookkeeping, the thresholds specified in it must be converted at the exchange rate published by the Hungarian National Bank (MNB) for a given date, so revenues should be converted at the year-end MNB exchange rate. [4]

Important: The section of the Act on corporate income tax information reporting uses its own definitions, which may be familiar from other legislation, but since full identity cannot be claimed, it is important to apply these own definitions when examining reporting obligations.

Definitions relating to the obligated entities:

Ultimate parent company: A company which draws up the consolidated financial statements of the largest group of companies.

Standalone company: A company which is not part of a group of companies whose members are included in consolidation.

Revenue:

a) In the case of companies subject to the Hungarian Act on Accounting, who do not apply IFRS, net sales revenue or income from ordinary activities according to government decrees containing specific accounting rules should be considered as income.

b) In the case of a company not covered by point a), revenue from ordinary activities as defined by or within the meaning of the financial reporting framework on the basis of which the financial statements are prepared or the equivalent income shall be considered as income.

2.1.2 Exemption from reporting obligation

The ultimate parent company and the standalone company shall be exempted from reporting if:

• including affiliated companies and branches, are established, or have their fixed places of business or permanent business activity, within the territory of Hungary and no other tax jurisdiction, or
• the revenue in the financial statements did not exceed for each of the last two consecutive financial years a total of HUF 275 billion, or
• such companies or their affiliated companies disclose a report in accordance with EU Credit Institutions Directive (2013/36/EU), that already contains the data to be reported.

2.2   Special cases

2.2.1 Companies Required to Report

In special cases, a subsidiary or branch should fulfil the reporting obligation instead of their ultimate parent company and standalone company.

a) A subsidiary of the ultimate parent company

If ultimate parent company is not governed by the law of an EU Member State, and its consolidated revenue exceeded for each of the last two consecutive financial years a total of EUR 750 million, the report on the ultimate parent company shall be published and made available by the Hungarian subsidiary.

b) Branch of the ultimate parent company or standalone company

A branch under the Act on Accounting of an ultimate parent company or standalone company not governed by the law of an EU Member State must prepare and publish a report on the ultimate parent or standalone company if:

• the annual net sales of the branch exceeded HUF 2.4 billion at the balance sheet date for two consecutive financial years, and
• the company establishing the branch is part of a group of companies where the income of the ultimate parent company according to its consolidated financial statements or the income of standalone company exceeded EUR 750 million in each of two consecutive financial years and there is no subsidiary subject to Hungarian Act on Accounting that prepares the report.

Important: The thresholds of EUR 750 million should be converted into an equivalent amount in the national currency of the relevant non-EU countries at the exchange rate published in the Official Journal of the European Union [5], at the date of the entry into force of the relevant Directive (21 December 2021), rounded to the nearest thousand. The applicable exchange rate is therefore the rate in force on the date of entry into force of the Directive, however, in the longer term a current exchange rate may seem more realistic for converting the thresholds. There is no information yet on possible changes in the applicable exchange rate.

If the information required for the report is not available to the subsidiary or branch, it should request the ultimate parent company to provide the necessary information.

If the ultimate parent company does not provide all necessary information:

• the subsidiary or branch shall prepare the report on the basis of the avail.able information, and
• a statement should be prepared and made public that the ultimate parent company has not provided the necessary information.

Important: Specific details about the statement are not yet available.

2.2.2. Exemption from reporting obligation

A subsidiary or branch of the ultimate parent company is exempted from reporting if the income thresholds for the parent company, standalone company (EUR 750 million) and branch (HUF 2.4 billion) referred to in the previous section resulting in reporting obligation are not exceeded.

Where a subsidiary or branch would be subject to reporting obligations due to exceeding the threshold, it may only be exempted from this obligation if the ultimate parent company or standalone company not subject to the law of EU prepares a report in accordance with the relevant Directive and fulfils the following conditions:

• publishes it on its website in machine readable electronic format in one of the languages of the Union within 12 months from the end of the financial year, and
• states the name and registered office of the only subsidiary or the name and address of a sole branch governed by the law of an EU Member State, which publishes the report together with its annual accounts.

Example: A Hungarian subsidiary can only be exempted from reporting obligations, if its ultimate parent company not subject to the law of EU prepares and publishes a report in accordance with the conditions, indicating which of its subsidiaries subject to the law of EU fulfils the reporting obligation.

3   Requirements concerning the layout, content and format of the report

3.1  Structuring the information in the report

The information in the report should be presented separately at Member State level.

Where a Member State covers more than one tax jurisdiction, the information should be aggregated at Member State level.

A tax jurisdiction is a state or a non-state jurisdiction which has tax autonomy in respect of corporate tax.

Important: Special rules apply to the presentation of information of tax jurisdictions that are non-cooperative jurisdictions for tax purposes. For this reason, it is recommended to check the relevant EU list to see if any of the group members is a company operating in this type of tax jurisdiction.

The detailed content of the report can be found in Section 134/F of the Act on Accounting, which is summarized in the table below:

Important: The data in this report can also be presented on the basis of the CbC reporting guide laid down in the EU Directive on Administrative Cooperation in the Field of Taxation. The report shall be provided in a standard form and in a machine readable electronic reporting format. A standard form is currently not available. The standard form and electronic reporting formats will be established by the European Commission by means of implementing acts.

3.2.  Other requirements, regulations

The Act on Accounting also provides for the following content:

• If there is a significant difference between the tax payable and the tax paid, it must be explained.
• The reporting currency must be the same as the currency used in the consolidated annual accounts of the ultimate parent company and in the annual accounts of the standalone company.
• If the subsidiary is required to prepare and publish the report, but does not receive all the information, the reporting currency must be the currency in which the subsidiary publishes its annual report.
• The report shall indicate whether it has been prepared in accordance with the Act on Accounting or in accordance with the CbC reporting guidance laid down in the EU Directive on Administrative Cooperation in the Field of Taxation.

4  Publication and retention of report, responsibilities and audit

4.1   Reporting for the first time

The company required to submit the report shall first fulfil its reporting obligation for the second financial year for which the conditions are examined, and thereafter annually for as long as the conditions are met.

Example: Identifying the years to consider for the first report may seem simple based on the above, but practical application can cause uncertainty, so we recommend reviewing the following example to dispel this.

In our example, the financial year of the ultimate parent company based in Hungary is the same as the calendar year, the currency of accounting is EUR. The consolidated figures of the parent company are as follows:

Given that the Hungarian company has a normal financial year, according to the entry into force of the regulation, it may be obliged to publish a report on corporate income tax information for the first time for the financial year starting on 1 January 2025. Therefore, the years to be considered for the threshold are 2024 and 2025. As revenue exceeds the threshold in both years, the Hungarian company is obliged to publish a report for the second of the years under review, i.e. 2025.

4.2.  Publication and retention of the report

The report shall be deposited and published simultaneously with the annual accounts in accordance with the provisions of the Act on Accounting on the publication and deposit of annual account.

The report and, where applicable, a statement that the ultimate parent company has not provided the necessary information shall also be published on the website of the company subject to reporting obligation.

The report on corporate income tax information for the financial year and, where applicable, the declaration shall be retained for 8 years, and the published data shall be available for at least 5 consecutive years.

4.3    Responsibility for Preparation, Publishing and Making Accessible the Report on Corporate Income Tax Information

By default, at the ultimate parent company, standalone company and,

in special cases, at the subsidiary the members of:

• administrative and
• management and
• supervisory bodies

have collective responsibility for ensuring that the report on corporate income tax information is prepared, published and made accessible in accordance with the relevant provisions of this Act.

In the specific case of a branch, the collective responsibility of the person or persons designated in Article 41 of Directive 2017/1132/EU of the European Parliament and of the Council is to ensure disclosure in accordance with the requirements of the Act on Accounting.

4.4   Audit

The independent auditor’s report shall include a statement by the auditor as to whether, in the financial year of the accounts audited, for the preceding financial year, the company was required to prepare and publish a report containing corporate income tax information and, if so, whether it disclosed and made it available in accordance with the Act on Accounting.

Example: If the company applying calendar year is required to prepare and publish a report for the financial year 2025, then the auditor will verify during the audit of the financial year 2026, that the report for the financial year 2025 has been prepared and published by the company together with the annual accounts in 2026 in accordance with the law. 

Τo review the Appendix of ’Summary table for the report on corporate income tax information’ , please, download the proper (English or Hungarian) lingual version of the newsletter pdfs, and go to the last page.

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Sources:

[1]   Council Directive (EU) 2016/881 amending Directive 2011/16/EU as regards the mandatory automatic exchange of information in the field of taxation

[2]   Act XXXVII of 2013 Section V/D.

[3]   Act C of 2000 Section VI/BB

[4]   Act C of 2000 20.§ 5(a)

[5]   Official Journal of the European Union – 2021/C 518/01

Download the newsletter as a pdf in English: 

Report on corporate income tax information 

——

Töltse le a hírlevelet magyarul pdf-ben: 
A társaságiadó-információkat tartalmazó jelentés