Thursday, December 18, 2014

Tax Act changes in 2015 - Part I.

Tax law changes concerning retail trade

The tax package adopted by the Parliament for the next year will not introduce new tax type – the internet tax was withdrawn – and neither have to we calculate with radical tax law changes; but, with numerous new provisions and amendments. Out from these we firstly call the attention to the main changes affecting the retail trade sector.
1. Corporate Income Tax Act (the CIT Act) will tighten the concept of the income- / profit minimum
Cost of goods sold and the cost of mediated services cannot be taken into account – that is divided from total revenues - in the calculation of the so called revenue – (profit -) minimum relevant for the preparation of the corporate income tax report (however, the local revenues of foreign premises can still be taken into account).
Thus based on the above the CIT Act practically defines the income minimum as 2 % of the adjusted total revenue, not including the special adjustments – namely this calculation must be taken into account from now on as the corporate income tax base (10%, 16%) by companies, which choose taxation according to income- (profit-) minimum.
Nonetheless, we note that in certain cases the company may not decide on the taxation according to the above calculated income minimum (neither according to the current regulations):
Thus for example, if the pre-tax profit or the corporate tax base pursuant to the general provisions is higher than the profit minimum; or such tax year is concerned when functioning as a pre-company that is in the first year of the undertaking founded without predecessor; or if in the tax year or in the previous tax year natural disaster had sustained the company, and nor in the case, when a special organizational form (for example association, foundation, charitable non-profit organization etc.) excludes the applicability to that effect.

2. Changes pertaining to local taxes

- According to the amendment act the municipalities will have authorization to introduce municipality taxes in their administrative area to subjects, which are not already levied by a public burden, in addition, taxable person can be a private individual, not entrepreneur, business association or organization. This way the amendment will spare stores.
- Nevertheless, determination of the base of the local business tax (HIPA) is tightening as of 2015 as the consequence of the amendment act.
Combined tax base determining rules during the calculation of HIPA of affiliated companies have to be used proportionately for the period of existence of the affiliated companies.
Pursuant to the Act on Local taxes, taxable persons qualifying to be affiliated companies according to CIT Act may determine their local business tax base in a way that the total net revenue of affiliated companies and the total net revenue decreasing expenditure positive difference.
During the calculation of the tax base the amount of the cost of the goods sold and the cost of mediated services shall be taken into account as well according to the net revenue of the taxable person; however, pursuant to the amendment act by the increase of the revenue it can be deducted in a decreasing extent progressively (expressed in %).
Therefore, whilst according to the currently effective rules when determining the revenue of affiliated companies the above adjustment items can be taken into account without restriction, afterwards only proportionately in line with the existence of the affiliated relation and to % extent according to the net revenue

3. Establishing progressively and increasing the supervision fee payable by food traders
Stores and chain stores selling daily consumer products according legal provisions currently pay uniformly 0,1% food chain supervision fee upon the net revenue arising from the payable activity from previous year. The fee must be reported for the subject year and its base can be reduced with the amount of the already paid excise duty and the public health product tax.
Significance of the fee is that the food-chain supervising organ ensures the income of the National Food Chain Safety Office (NFCSO) and the governmental offices for the ensurance of the official supervisory activities pertaining to food chains. Authorities pursue hundreds of thousands of supervisions annually, and examinations of millions to the products of food stores.
As a result of the amendment of legal provisions the amount of the food chain supervision fee will increase and will be established progressively upon the net revenue of the business association according to the below:
·         up to HUF 500 million: no fee payment obligation;
·         up to HUF 500 million – HUF 50 billion: 0,1%;
·         above HUF 50 billion: the amount of the fee increases by 1-1% after each 50 billion;
·         above HUF 300 billion: 6% (this is the maximum extent).
The increase of the food supervision fee can mean additional burden of the value of billion to the food store chains, based on which it is likely that they will be forced to increase the consumer retail trade prices.
We will inform our Readers about further changes of the tax package from 2015 in our upcoming newsletters.

Figyelmeztetés / Alert

2015. január 1-jétől a Fővárosi Közigazgatási és Munkaügyi Bíróság új címe 1021 Budapest, Tölgyfa u. 1-3.
Felhívjuk a figyelmet, hogy a jövőben a Bíróságnak küldendő beadványokat az új címre kell címezni, valamint a munkáltatót a munkavállalóval szemben terhelő értesítési kötelezettség – úgymint a munkáltatói felmondás – estén is  a Bíróság új címét szíveskedjenek megjelölni. Ennek elmulasztása a beadványok elutasításához vezethet, különösen jogvesztő határidő– úgymint a keresetlevél benyújtása – esetén kimentésnek helye nincs.


From 1st January, 2015 the new address of the Metropolitan Court of Public Administration and Labour is 1021 Budapest, Tölgyfa u. 1-3.

We kindly note you that the petitions are to be sent to the Court shall be addressed to the new address, and also in the case of a notification obligation on employer towards employee – such as dismissal – shall note the new address. Please note, if you fail to do it your petitions may be rejected, in particular in case of a limitation period – such as application initiating – the exculpation is not allowed.

Tuesday, November 4, 2014

Is the Act on foreign exchange loans unconstitutional?

The new second package helping the foreign currency debtors has arrived.

The second package has been adopted by the Parliament two weeks before. The Hungarian Banking Association requested the President of the Republic not to countersign the Act. Finally president János Áder countersigned the Act on Saturday. Thus the financial institution have to reckon with the clients between 14 January 2015 and 30 September 2015 in connection that how much was the overpayment due to the exchange-rate spread, respectively due to unilateral contract modifications. This procedure concerns approximately 1,3 million contracts, of which almost half are forint credits. However for this procedure first of all the State have to win the legal proceedings initiated by banks, in which the banks try to prove that they played fair.

Up to now 65 judgments have been adjusted and altogether three plaints of the public institutions were partly accepted and three other cases are currently in front of the Constitutional Court. Last week the minister of Ministry of Justice said that the lawsuits might be permanently completed at the latest in the first half of January. „According to our hopes the appeal proceedings shall be completed until the middle of November. The judicial review, which is pending in front of the Supreme Court shall be permanently completed under our hopes until the end of the year or at the latest in the first half of January” – declared László Trócsányi, the minister of the Ministry of Justice.


The action of the EvoBank was the first from the actions initiated against the Hungarian state by the public institutions which has been negotiated on the second instance by the Court of Appeal of Budapest. On the court hearing the presiding judge emphasized in the oral preamble of the legally binding warrant that the council of the Court of Appeal asks the Constitutional Court to state several sections of the first Act on foreign exchange loans (Act XXXVII of 2014) unconstitutional and to obliterate those. Among other things for the section which adjusts that the contractual stipulation is void if the public institution did not initiate civil proceeding in the deadline stipulated in the Act or the action was rejected by the court or the civil procedure was terminated by the court. The Metropolitan Court would get the Constitutional Court to terminate that legal provision as well, under which the public institution has to reckon with the consumer according to separate Act.
According to the Metropolitan Court as appellate court additional 10 more sections of the Act are unconstitutional, principally those sections relating to civil proceeding which are fix that what kind of procedures are suitable for the public institutions to disprove the legal presumption of the unfairness.

According to the opinion of the Metropolitan Court of Budapest these legal sections harm the principle incorporated in the New Fundamental Law of Hungary, namely that Hungary is an independent, democratic rule-of-law state, harm the principle of division of powers, respectively harm that section under which everyone shall have the right to have any charge against him or her, or his or her rights and obligations in any litigation, adjudicated within a reasonable time in a fair and public trial by an independent and impartial court established by an Act. Furthermore the Act hurts the principle relating to the independence of the judges set out in the Fundamental Law, the principle of legal certainty, respectively hurts that the judges provide judicial activity according to the opinion of the Court of Appeal.

In his preamble the judge evaded that the unfairness of the contractual condition is an ethic conception, and the „logically conclusion based on public experience” of the judge has significant consequence by the judgment of the conception; however, the judge could not conclude conclusion, which requires expertise merely under the logical rules, without any help in this respect. The judge said that the realization of the seven principles set out in the Act can be mostly educed without any special expertise, but the legal knowledge of the judge is not always sufficient for the assessment of the effects of the economic procedures.

The judge added that because of the tight deadline set out in the Act, the conduction of the evidence procedure may solely confine to handing over the documentation, and enforcement of additional evidence instrument may jeopardize the observing of the deadlines, moreover it makes impossible that.

In the appeal the EvoBank Zrt. requested that the Constitutional Court sets out that the Act is unconstitutional, respectively it interferes international contracts and requested at the Constitutional Court the initiation of the procedure aimed at excluding the enforcement of the unconstitutional provisions. According to EvoBank in the preamble of the judgment passed by the Court of Appeal, the Court has acknowledged that „having unconstitutionally anxiety in the Act” as well.

The plaintiff Bank added in its appeal that the rising of the regular payments does not go hand in hand with the groundless „enrichment” of the creditor, since the creditor enforced in principle the plant of the fund costs in the course of the interest elevation, thus the balance between services did not fall over certainly in general aspect.

The respondent Hungarian State requested the approval of the judgment on first instance passed by the and state its cross-appeal that the Act on foreign exchange loans is not post legislation because the harmonized decision of the Supreme Court based on the “old” Civil Code and other legislations connected to consumer sales contracts.

According to the Hungarian State the legislator did not create such legal environment, so the disadvantage of the scope extended for the contracts technically concluded earlier shall be borne solely by the public institutions.

Should the decision of the Metropolitan Court does not suitable for the banks, so for the banks shall remain only the way of extraordinary remedy to dispute the judgment, whereby they could submit retrial or review request. Here we would like to indicate that constitutional challenge submitted to Constitutional Court on transaction stamp and concerned to banks has already rejected by the Constitutional Court.

Monday, October 6, 2014

MOSS to come into effect soon! - Rules governing the place of supply will change as of 2015

The tax authority has published a notification on the MOSS, the “Mini One Stop Shop”, which enables a mini one stop shop value added tax (hereinafter: the “VAT”) administration to taxpayers providing services, which can be supplied at a distance.

 The mini one stop shop (MOSS) coming into force as of 1 January, 2015 will allow taxpayers providing telecommunications, broadcasting or electronically supplied services to non-taxpayers in a Member State in which they do not have an establishment, to submit their community VAT return due on those supplies via a web-portal in the Member State where they are identified. This one stop scheme is optional and is merely a simplification measure following the change to the VAT place of supply rules as of 2015.

 In what ways will the rules pertaining to the place of supply in the EU VAT legislation change?

 Place of supply will not be the Member State in which the service is provided, but the Member State where the recipient (customer) is situated. The MOSS enables the taxpayers not to register for VAT purposes in each Member State of consumption.

 The European Commission with the cooperation of the respective Member States set up guidelines on the use of the MOSS scheme, which introduce the fundamental basis of its use in a comprehensible manner, making easier the deliberation regarding the entry and to bring decisions during the every-day use for the taxpayers. These guidelines can be already found on the webpage of the Commission (Guide to the VAT mini one stop shop; Explanatory notes on the EU VAT changes to the place of supply entering into force in 2015; Complementary guidance on data monitoring).

 Following the entry into force of the MOSS our further detailed article on the subject may be expected, but certainly until and thereafter our professionals will remain at your kind disposal to answer individual enquiries.

Tuesday, August 26, 2014

Labour Law : right of pregnant women to lie to employer

The Hungarian Constitution Court („CC”)issued a detailed decision [decision No. 17/2014. (V. 30.) AB] on the right of pregnant women and women under medical fertilization treatment to hide their pregnancy / fertilization process. The decision was published on 27 May 2014. The breakthrough ruling is introducing the “right to lie” in Hungary that is already recognized in some other EU member states.

In its decision the CC expressed its privacy concerns and eliminated a provision from Act No. I. of 2012 on the Labour Code, with retroactive effect.

The Fundamental Law of Hungary protects privacy and family life. According to Article II thereof, human dignity shall be inviolable and every human being shall have the right to life and human dignity; embryonic and foetal life and shall be subject to protection from the moment of conception. Further, according to Article VI of the Fundamental Law of Hungary, every person shall have the right to the protection of his or her private and family life, home, relations and good reputation, and every person shall have the right to the protection of his or her personal data, and to access and disseminate data of public interest.

Further, in Hungary, pregnant woman are protected by law from termination (during pregnancy and until the third anniversary of the child or when they terminated their nursing period without work). According to some judgments the protection is “objective” and consequently applies to the woman even if she was not aware of her pregnancy; however, such judgments are rare.

The consistent court practice relating to the interpretation of the above provision has always been controversial, most judges argued that the employee must inform the employer at the time of the termination (at the latest) in order to benefit from the protection. Moreover, an individual judgment even confirmed that if the employee hides her pregnancy from the employer, she is not protected from the termination since she is acting in bad faith.

In order to unify the court practice in this regard and to protect the employer’s interest, the parliament incorporated a provision to the LC that the protection applies only if the employee informs the employer about the pregnancy / medical treatment. According to the original section 65 (5) of LC, the pregnant women and women under fertilization process are subject to termination protection provided that they properly inform their employer about the fact of pregnancy / fertilization process.

The commissioner for fundamental rights (“Commissioner”) submitted to the Constitutional Court a petition for ex-post normative control, asking for the constitutional review of Section 65 (5) of the LC. According to his opinion formed on the basis of reviewing the studies dealing with the codification of the new LC as well as the Hungarian and the European practice of fundamental rights, there are serious justifiable constitutional concerns regarding the challenged regulation on the termination protection. As pointed out by the petitioner, the provision requiring an employee to talk about pregnancy is impossible if the employee is not aware of the pregnancy. He highlighted that those who are not aware of their medical status should also need protection. He referred to the Fundamental Law which ensures the right for privacy and private family life. The commissioner for fundamental rights held that the recent changes in the provisions of the Fundamental Law in the field of privacy do not imply the disregarding of the Constitutional Court’s judicial practice – based also on the practice of the European Court of Human Rights – related to the right to private life. Moreover, the Commissioner made a reference to a Curia decision from 2004 arguing that it is against the principles of law to require an employee to talk about her pregnancy to the employer or even to give false information.

 Decision of the Constitutional Court

The Constitutional Court accepted the claim of the Commissioner and canceled section 65 (5) from the LC with retroactive effect. In the decision the CC gives a detailed analysis on the concept of privacy and introduced the “right to lie” in order to prevent human dignity.

In the decision the CC gives a detailed reasoning relating to the practice of the European Court of Justice protecting the rights of pregnant women and the requirements for equal treatment. However, the CC explains that it is not only an equal opportunity question but also an issue relating to privacy protection. In its view, the CC must examine (within the frame of the petition of the Commissioner) whether making the protection against dismissal defined in the Section 65 (3) a) and e) conditional upon informing the employer about it – before giving notice of dismissal – by the employee infringes the right to privacy or private family life. During this scrutiny by the CC, the starting point was the determination of the protection scope of the referred fundamental rights.

The CC has interpreted the right to privacy and its relation to the right to human dignity in its previous decision No. 32/2013. (XI. 22.). It came to the conclusion that the Article VI (1) of the Fundamental Law – contrary to Article 59. § (1) of the previous Constitution – provides comprehensive protection of privacy: and covers the private and family life, home, communication and good reputation of the private individual. As regards the substance of privacy, it continued to deem sustainable the definition – representing the overall essence of the notion of private life - reached by the Constitutional Court in its earlier practice, according to which, the essential conceptual element of privacy is that others may not interfere or have access thereto against the will of the person concerned. The Court highlighted that there is a particularly close relationship between the right to privacy ensured by Article VI. (1) of the Fundamental Law and the right to human dignity guaranteed by Article II. of the Fundamental Law.

In the CC’s interpretation, Article II. of the Fundamental Law provides basis for the protection of the “untouchable area of the formation of privacy”, which is completely excluded from any kind of state intervention, since it is the basis for human dignity. Nonetheless, according to the Fundamental Law, the protection of privacy is not restricted only to the inner sphere or intimacy protected also by Article II of the Fundamental Law, but it also covers privacy of a wider sense (communication) and the territorial sphere, in which the private and family life unfolds (home). Beyond this, the image created about one’s life enjoys individual protection as well (right to good reputation).

 [30] Article XVII (3) of the Fundamental Law concretizes the protection of rights ensured in Article II and VI (1) of the Fundamental Law in relation to employment: „Every employee has the right to working conditions which respect his or her health, safety and dignity.” The safe working conditions, not endangering the health of employees are ensured by the Act XCIII of 1993 on labour safety; to respect employees’ dignity by the Act CXXV of 2003 on Equal Treatment and the Promotion of Equal Opportunities, furthermore during the employment by the provisions of the LC guaranteeing the protection of personal rights and Sections 2:42–54. § of the Act V of 2013 on the Civil Code.

Section 9 § (1) of the LC stipulates the general requirement of the protection of personal rights. Personality rights are named within the Civil Code, thus the right to privacy and the right to the protection of personal data as well [CC 2:43. § b), e)]. The protection of personality rights in labour law – according to the reasoning of the LC – is of high importance, primarily due to the imbalanced nature of the employment relationship. According to Section 10. § (1) of the LC, an employee may be requested to make a statement or to disclose certain information only if it does not violate his rights relating to personality, and if deemed necessary for the conclusion, fulfilment or termination of the employment relationship.

With view to the fact that the circumstances defined in Sections 65. § (3) a) and e) of the LC are regarded as personal data, the Constitutional Court referred to its previous practice regarding the relationship of the right to privacy and the right to protect personal data ensured by Section VI. (2) of the Fundamental Law. The Constitutional Court (since 1991) had not construed the right to protect personal data as a traditional protective right, but taking into account its active side as well, interpreted it as right of informational self-determination.

The CC highlighted that the right of informational self-determination is closely linked to the right to privacy, whilst it contains the right to decide as to when and within what limits will the individual reveal its data related to its person. The restriction of the right of informational self-determination – contrary to the right to privacy– is not aligned primarily to the character of the data, but to its use. The right of informational self-determination comprehensively protects the personal data of the private individual, irrespectively of how the data controller came to the possession of those.


Interpretation of the term “private life” in Hungary by other authorities

The definition of private life is a broad concept with no exhaustive definition in Hungary. Different interpretations are available in decisions adopted by criminal or civil courts. However, in general, the concept is wider than that of the right to privacy and it concerns a sphere within which everyone can freely pursue the development and fulfillment of his/her personality. In the interpretation of the CC, the right to private life is not only wider than to right to privacy, but it is covered by the “information self-determination” that requires active (pro-active) conduct from the affected individual.

The previous Data Protection Commissioner already analyzed in details the employee’s rights to protect certain information from the employer and he pointed out in several opinions and statements that the employee may not be forced to provide information on his /her private life to the employer unless the question of the employer affects the material part of the employment relationship. For example, pregnant women can only be requested to provide information on their pregnancy if the information is relevant to work schedule or to dangers involved in fulfilling certain positions. In any other case, it falls under the right of the woman’s information self determination whether to provide the information to the employer or not.

Under Hungarian law, the decision of the CC may serve as a basis for the re-opening of the closed litigation in which pregnant woman were affected. The case also shows that the interpretation of privacy law remains at the table of the Constitution Court, further refining its previous practice interpreting the notions of privacy, private life, and personal data protection.
Should you have any questions feel free to contact us or visit our website:


Tuesday, July 29, 2014

Punishable comments on the internet

In its order No.IV/5/2013.the Constitutional Court stipulates that the liability of internet content providers or operators of forums is objective regarding the non-moderated  infringing comments. According to the judicial body, the intermediary internet service providers may be held liable when disclosing comments, regardless of whether they had monitoring obligation as to their content or not.
The legal determination of internet service providers´ liability has always raised questions of fundamental significance in the world of internet. This was faced in the case underlying the order of the Constitutional Court, where an internet content provider (hereinafter: ICP) initiating constitutional complaint had disclosed an opinion in its homepage concerning the advertising practice of one realtor company.
The article recorder that from several users complaints arrived about the contractual practice of the homepages operated by the realtor, which after examination the ICP found it to be unfair itself and declared the practices of the company as being based on deceit of consumers. At the same time, it called the attention of users to the importance of awareness of internet use and to read through carefully the terms of use. The opinion was commented and was communicated forward by several other internet portals too.
The realtor company had filed a petition against the ICP for the infringement of its personal rights. According to its opinion the content of the articles is false and along with the comments made thereto, infringes its right to the protection of good reputation.
According to the courts of first and second instance the article of the ICP is not unlawful, however, it provided platform for serious violating and degrading comments, hence it conducted the infringement of good reputation by  rumor. The court added that the fact that the comments were removed by the ICP without delay, has no significance when determining the infringement.
The ICP had pointed out that according to the effective legal regulations pertaining to the information society, it is in the present case deemed to be an intermediary service provider;therefore, it shall not be responsible for the contents of the comments,since the intermediaries are not obliged to moderate the blogs and the comments, or to monitor theircontent, such internet service providers provide exclusively storage and platform forplacing the content. Comments appear on the websiteby one click, without the assistance and supervisionof the intermediary.
The Association of Hungarian Content Providers (hereinafter: AHCP), who intervened to the case in the interest of the ICP to win the lawsuit and turned to the Constitutional Court, whilst it found injurious that according to the court decisions it is infringingthat someone is ensuring possibility on its homepage for the placement of comments without monitoring them, whereas it must count with the possibility that there may be an infringing comment among them. According to the constitutional complaint the court decisions infringe the freedom of express of opinion and the freedom of press. It held that it is a necessary and proportionate restriction of the freedom of press when the court qualifies the opinions infringing good reputation, unlawful; however, it is un-proportionate, if the person who has no influence on the content of such comment shall be held liable as well, since it provides exclusively the platform for disclosing the comment.
In the view of the AHCP, whereas being a fundamental right of communication,the aim of the right of expressing opinionis to ensure the discussion of „public matters”, „the possibility of self-expression in a social context”.These are the internet forums and comments, where users may express their thoughts and opinions. As per the AHCP, it is the significant element of the freedom of the expression of opinion that someone may disclose comment on the internet without prior moderation, hence if only previously moderated comments could appear, opinions would not meet and an important element of the clashes ofopinions would disappear. 
However, according to the Constitutional Court, the complaint was not justified.
At the beginning of its order it refers to the currently effective laws, pursuant to which the liability of internet service providers and intermediaries is different. While the internet service provider is responsible for the unlawful information made available, since it creates and publishes it by itself, on the other hand the intermediary - although as a general rule it is liable -, in the existenceof certain conditions may be exempted from the responsibility, according to the governing act it is obliged to monitor the information only forwarded and stored by it.
Furthermore, the Constitutional Court stipulates on conceptual basis that the Fundamental law ensures and protects free communication, regardless of its content of value or truth, thus the constitutional protection extends to all opinions no matter its content. It elaborates further that the freedom of press grants constitutional protection to the freedom of spreading information,opinion; does not protect the content of the opinion, but its forward to the public. Therefore, the determination of the liability of the operator of the internet page, without no doubt restricts the freedom of press extending as well to the internet communications.
It also points outthat there are two forms of comments: the moderated and non-moderated comments. The prior are preliminarily examined by the webpage operator and if it finds it unlawful or contrary to its own moderating principles,will not disclose it. The latter are not moderated by the operator, it is not in its duty either.
 Nonetheless, since mainly the person of the actual infringer „commenter” is unknown, the liability is on the operator of the webpage. The moderated comment, if it is infringing, triggers the same legal consequence as if it was not monitored previouslyor subsequently.The moderation of the comments does exempt from the liability or responsibility for unlawful communications. The liability for the unlawful comments (and the obligation for damages in certain case) is independent from moderating: it is based on the sole fact of the unlawful comment.
The Constitutional Court stipulates thereby in its order that it does not deem it justified to differentiate between the moderated and non-moderated comments. According to its opinion, if the internet providers undertaking moderating are liable for the illegal comments appearing on their page, then determining the infringement against the intermediary operators of the pages not undertaking moderating shall be proportionate as well. Question arises as to whether the modern form of expressing opinion will be limited in the light of the findings of the above order and whether the operation of non-moderated internet commenting in Hungary will be become questionable?
Should you have any questions, we are at your disposal. For more information about BWSP Gobert and Partners, feel free to look at our website:

Friday, July 11, 2014

Foreign currency debtors - The act puts more strain on the banks than expected

The bill which purpose is to help the foreign currency debtors was accepted on the 4th of July 2014, this can rewrite many consumer loan agreements, in this case it can put a much bigger strain on the financial institutions than expected. The accepted bill is waiting to be signed by the president and is then going to be published by Hungarian official journal.

The act (which was entered into force between the 1st of May 2014 and before this act came into effect) can effect consumer loan agreements, but also loan agreements which are based on HUF and financial leasing contracts. The companies will not be affected, since according to the credit institution law, they are not considered as consumers and oblige to final repayment. Furthermore those persons will not be affected who dedicated their real property to Hungarian National Asset Management Inc.

The aim of this act is to manage the situation of the debtor, to relieve the courts and to give the financial institutions the chance for voluntary compliance.

The act declares the credit gap in foreign exchange rate contracts as unfair and invalid. As well as the use of different buying and selling rates, therefore the official currency rate of Hungarian National Bank is going to be implemented. They presume furthermore the contractual cause which contains unilateral interest raising or charge raising or fee raising as unfair, which is normative in the case of loan and financial leasing contracts. The pending lawsuits and judicial execution procedures are going to be suspended. The contracted agreements are going to be upheld by the act, but to avoid the conditions which are declared as unfair, close deadlines are set to fulfill the obligations by the financial institutions.

(i)      The conversion of foreign currency loans have to be carried out  90 days after the bill comes into force, the plan of conversion to the Hungarian financial supervisory authority has to be carried out within 60 days.

(ii)    the general contract terms and conditions and unique contract terms and conditions which contain unilateral modification of contracts shall be revised within 30 days after the bill comes into force on top of this, a report has to be made to the Hungarian financial supervisory authority, and at the same time they shall declare whether in their opinion these are unfair or not. If the Hungarian financial supervisory authority announces this as fair, they can commence a civil procedure against the Hungarian state, they then have a chance to do so 30 days from the time the bill came into force in, in case of HUF currency loans they have a chance to do so between 90 and 120 days. As in the lawsuit there is no possibilities to complete the documents, the burden of proof encumber the financial institutions, this is a vital information for those who are submitting a claim, especially since the act defined the proceeding fee in 1 500 000 HUF.

The act obligates the financial institutions to cut the unfair conditions, under the control of the Hungarian financial supervisory authority.

Should you have any questions or if you enquire any further information, please do not hesitate to contact us. Our professionals are at your disposal.


Friday, July 4, 2014

The advertising tax is coming!

On the 17th of June 2014 the heavily disputed Act XXII of 2014 on Advertising Tax was announced, which introduces an entirely new type of tax in Hungary.

 Under the broad scope of the Act, advertisements that are “predominantly in Hungarian” will become taxable in the media and entertainment industry (television, radio), publications distributed in Hungary, out-of-home advertising (e.g. posters, billboards, bulletin billboards, aerial banner-towing) and on vehicles, real estate or the internet.

 Who is taxable?

 The list contained in the Act confirms that publishers, online advertisers, persons or other legal entities utilising vehicles, printed material or real estate for the purpose of advertising, as well as any “media content provider settled in Hungary” are taxable.

 The question on who constitutes a media content provider within the latter category has already raised a number of questions as, in this regard; the legislation is contrary to EU directives.

 According to the relevant media laws, any media service provider which provides media services on frequencies which belong to the state of Hungary will become taxable, regardless of the location of the company’s headquarters.

 The European Court of Justice has dealt with the question of territorial scope and jurisdiction on multiple occasions, for instance in the case of Commission vs. United Kingdom (Case C-222/94), where it was held that if any service provider is established in more than one Member State of the European Union, the Member State having jurisdiction over it is the Member State in which the service provider has the centre of its activities. The situation is different, however, where the media service provider is established in another Member State in order to circumvent the stricter rules of the main country in which it operates.

 Extraordinarily high tax rate

The Act introduces progressive taxation. Consequently, if the advertising revenue falls between HUF 500 million and HUF 5 billion the tax rate is 1 percent; where the amount of revenue is over HUF 20 billion the tax rate can reach 40 percent.

Tight deadline for payment

The Act comes into force 31 days after its promulgation and taxes shall be paid immediately thereafter. Accordingly, taxpayers are required to assess and declare this year’s advance taxes until 20 August 2014, and pay those taxes in two equal instalments until 20 August 2014 and20 November 2014, respectively.

 Accordingly, it is shown that as the law takes effect, questions regarding the interpretation of the Act are expected to affect a broad range of taxpayers. In particular, the geographical scope, the issue of jurisdiction and the purchase and lease agreements of properties used for advertising purposes are all issues which will undoubtedly be caught in the crossfire.

 If based on the above you are unsure whether you are subject to the advertisement tax and regulatory proceedings under the Act, or what you should pay attention to in terms of advertising as a lessee or owner of real estate or operator of a vehicle, please contact us and our experts will be entirely at your service!

Tuesday, June 17, 2014

Bank secrecy no longer provides protection?

Our recent post provides a summary of the domestic, international and Union legislative developments, which significantly concern both the obligations of the banking sector and the question of taxation of the savings of domestic investors across Europe.

Changes can be expected in connection with the Directive 2003/48/EC on taxation of savings’ income in the form of interest payments, the so called Savings Directive (hereinafter:Directive”), which entered into force on July 1, 2005 with the aim to enable the savings income in the form of interest payments made in one Member State to beneficial owners who are individuals resident in another Member State to be made subject to effective taxation, its promotion and supervision.

For the fulfilment of the above, the Directive prescribes automatic reporting obligation to the source country, namely to the country of interest payment for the purpose of promotion and supervision of tax liability, in which information exchange all member states participate with the exception of Austria and Luxemburg. According to the notification of Luxemburg, as of January 1, 2015 it will switch to automatic exchange of information, hence as of that date only one member - Austria –insists on the institution of bank secrecy.

However, it is important to mention that except of the member states of the European Union, 5 European countries (Switzerland, Lichtenstein, San Marino, Monaco and Andorra) and severaldependant or associated territories (Guernsey, Jersey, Netherlands Antilles, Aruba, Anguilla, British Virgin Islands, Cayman Islands, Montserrat) also take part in the exchange of information or in the imposition of withholding tax.

I. What persons and incomes are affected by the change?
The scope of the Directive extends to economic actor figuring as paying agent and to the so called beneficial owner private individuals, who receive interest income. The Directive does not pertain to legal entity or to organization other than legal entity receiving interest payment through legal arrangements, and neither to private or legal persons having residence in third countries. Thus its provisions may only and have to be applied to the interest payments of paying agent resident in the territory of the member states.

The scope of this Directive should be limited to taxation of savings income in the form of interest payments on debt claims, to the exclusion, inter alia, of the issues relating to the taxation of pension and insurance benefits.

II. Who qualifies to be beneficial owner private individual?
Beneficial owner means any individual, being resident in another member state, who receives an interest payment or any individual for whom an interest payment is secured, unless he provides evidence that it was not received or secured for his own benefit. An exception is made therefore, if the private individual acts as

i)  paying agent,
ii) he acts on behalf of a legal person, an entity which is taxed on its profits under the general arrangements for business taxation, organization qualifying to be European investment fund, or company qualifying to be paying agent, or

 iii) he acts on behalf of another individual who is the beneficial owner.

 The determination of the beneficial owner private individual’s tax residency and identity happens through various special rules according to whether the contractual legal relation serving as a base for the payment, was established before or after January 1, 2004. Accordingly:

1.       For contractual legal relations established before January 1, 2004it may be determined bythe rules of the country of the paying agent’s residency, and upon the information available according to the Directive 91/308/EGKon the prevention of money laundering.
2.       In case of contracts concluded on or after January 1, 2004the paying agent stipulates the name, address, further the tax identification number of the beneficial owner, which he determines upon the passport or official identity card. If the tax identification number does not figures in the passport or official identity card presented by the beneficial owner, the identification must be supplemented by the beneficial owner’s birth place and date.
III. What shall be deemed interest according to the Directive?

According to the Directive, interest shall mean:

·         interest paid relating to debt claims of every kind, in particular, income from government securities and income from bonds or debentures,

·         interest accrued or capitalised at the sale, refund or redemption of the above claims,

·         investment companies’ payments having interest character,

·         income realised by the sale, refund, redemption of the shares or units of the investment undertaking, if the undertakings and organizations invest more than 25% of their available assets directly or indirectly into claims realising interest income.

IV. How does the provision of information and the exchange of information proceed?

The paying agent is obliged to provide information pertaining to interest payments, which information the paying agent’s member states’ authority is obliged to send to the member state of the beneficial owner. This information must in all cases contain the following:

·         identity and residency of the beneficial owner,

·         name and address of the paying agent,

·         bank account number of the beneficial owner, in the lack of this the legal base of the interest payment, and

·         information referring to the interest payment.

V. Imposition of withholding tax or provision of information?

We call the attention that, if the residency of the person receiving the income differs from the member state of the paying agent, thus the Luxemburg and Austria is obliged to deduct 35% withholding tax from the income. The two member states applying the imposition of withholding tax does not forward information about the paid interests, nevertheless, they receive such information from other member states concerning their own citizens!

As of 2010 Belgium has converted to providing data, thus it does not apply withholding tax anymore.
Share of the income

Member state using withholding tax retains 25% of the income – for administrative costs –and is obliged to transfer 75% to the member state of the beneficial owner.

Exemption from the withholding tax procedure

Article 13 of the Directive ensures an opportunity that the beneficial owner may request exemption from the withholding tax, namely request not to impose withholding tax on the incomes. This exemption may be realised in two ways:

·         The beneficial owner authorizes the paying agent to provide information in connection with the payments fulfilled on behalf of him,

·         Presents the paying agent one certificate issued by the tax authority of his member state to his own name, in which it acknowledges himself as beneficial owner for the itemized investments.

VI. What does the above mean at national level?

Hungary applies the Directive since its entry into force, it has been implemented by the Schedule No. 7 to Act XCII of 2003 on the Rules of Taxation (hereinafter: the „Art.”) on the disclosures on interest payments.

The automatic exchange of information is dealt by the Central Contact Office of the National Tax and Customs Authority, which annually forwards the information received from domestic paying agents to the tax authorities located in the member state of the beneficial owners. The Art provides same definition for the interest payments belonging to the scope of information providing obligation as the Directive.

Who is the paying agent?

Paying agent is the legal person, business association lacking the status of legal personality, or other organization, which directly pays or secures interest to the beneficial owner being resident in another member state of the European Union.

The person obliged to provide information communicates electronically to the tax authority the name, address of the organization and the amount of the interest paid to it until March 20thof the following tax year, except when the person receiving the payment provides credible evidence that the legal person, or the person subject to corporate tax in it’s member state of residence or operates as European Investment Fund, or qualifies to be such fund based on the certificate issued by the authority of the member state of its residence.

Certificate about taxation may be requested by filling out the application form No K07, which the tax authority issues in Hungarian and English free of charge within two months.

Interest income according to the national legislation

According to the Schedule 7 of the Art., it is the amount, which the person obliged to provide information pays to transparent organization, this concept, however, does not match with the notion of interest income stipulated in the Act CXVII of 1995 on the personal income tax (hereinafter: the „Szja. Act”).Furthermore, it is important to mention that the notion of interest does not include the interest due to delayed fulfilment.

Can the withholding tax be claimed back?

According to the domestic procedural rules governing the refund of withholding tax, the withholding tax deducted and transferred by the member state imposing withholding tax arrives to the national tax authority’s separate account.

Within 30 days following the crediting on the account, the tax authority attributes the transferred tax on the account of the beneficial owner.

In case of interest income obtained following the day of 1 September, 2006, the accounting of deducted withholding tax happens upon the request of the taxpayer (according to section 14-15 of the Schedule No. 7 of Art.14-15.).

In case certain Hungarian resident private individual would like to be exempted from the withholding tax, it may happen based on the two procedures ensured by the directive.

Hungarian resident beneficial owners may require the certificate about the non-deductibility of withholding tax at the territorially competent tax authority. The certificate is issued by the tax authority free of charge for a period not extending 3 years.

Practical example is when a German tax resident private individual receives interest income upon his Hungarian bank deposit. The interest income is taxable in Germany. If the German private individual has certified his/her residency at his /her Hungarian bank, the bank will not deduct tax, but it will provide information to the Hungarian tax authority, which within the framework of automatic exchange of information will forward the information to the German tax authority. 

VII. Conclusion

As pointed out above, the aim of the Directive is foremost to hinder the concealment of income through the exchange of interest in a manner that it informs the state of the private individual about the creation of the income. By the creation of the Directive, the taxation of interest income happens on the basis of a three level – national, international, union – regulation. The Treaties on the avoidance of double taxation determine where the interest income is taxable. Based on the Treaties this is mainly the state according to the residency of the beneficial owner, but besides, certain treaties allow the imposition of withholding tax in the limited amount. Thus for example based on the Hungarian-Polish Treaty the interest can be taxable in the source country by the amount of 10%.

In summary, the inner relationship of the regulations may be defined as follows: the tax treaty regulates where the tax income is taxable, the national regulation how is it taxable, and the aim of the Directive is to ensure the taxation according to the provisions of the tax treaties. Nevertheless, it is important to note that in spite of the above the Hungarian regulation – according to the Section65.§ (3) ab) of the Szja. Act – withdraws from the scope of taxation the income, in connection of which the Schedule No. 7 of Art. prescribes information providing obligation.

The European Committee puts the Directive under constant development, as a result of which on March 14, 2014 the EU Council adopted on political level the proposal on the extension of the Directive the rules of the extended Directive will be applicable as of January 1, 2016. In practice this means that the enhanced monitoring and analysing of the regulation is indispensable both for the banking sector and from the side of the investors.

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