Government decrees announced on March 23 further expand scope of government's economic relief measures
Tax & Legal Alert | PwC Hungary | 24 March 2020
New government decrees setting out additional economic relief measures were issued on March 23 as part of a relief package designed to mitigate the economic impact of COVID-19 in Hungary. By introducing these measures, the government intends to provide early support to affected businesses, as well as to the general public.
These government decrees affect judicial and tax enforcement proceedings, employers’ and employees’ dues and other payment obligations, contactless payments, and tourism development contributions.
I. Government Decree No. 57/2020 on measures associated with enforcement proceedings during the period of emergency
Provisions on enforcement proceedings before the tax authority
Pursuant to the Government Decree, enforcement proceedings that were already pending on 24 March have been suspended until the 15th day after the end of the period of emergency. Importantly, this measure is not a cancellation of tax debts; rather, the legislators’ aim was to grant a grace period for settling outstanding tax debts.
The wording of the Government Decree and other relevant regulations is, however, unclear on whether enforcement proceedings that have not yet started are affected by the new measures; for example, whether, independent of the emergency measures, such proceedings may even be started or any enforcement action (e.g. collection) may be carried out as part of such proceedings. This problem is not, however, rooted primarily in the wording of the Government Decree, but rather in the definitions set out in Act CLIII of 2017 on Enforcement Proceedings by the Tax Authority ("EPT"), which lack clarity on the relationship between suspension and the commencement of enforcement proceedings.
With that in mind, regardless of the relief measures, careful consideration is required when it comes to tax enforcement proceedings that have not yet started. In particular, such an approach is necessary in view of the fact that, for the purposes of the EPT, practically any document that sets out a payment obligation (including tax returns) is deemed to be immediately enforceable, and the tax authority is not required to notify the debtor of the fact that enforcement proceedings have started. Consequently, tax enforcement proceedings concerning monetary claims can start directly with collection, in which case the taxpayer concerned will only become aware of the enforcement proceedings when collection has already taken place.
There are, however, procedural techniques and other solutions that can be applied even under the current circumstances, allowing taxpayers to ensure suspension of potential tax enforcement proceedings that concern existing payment obligations. This is so because the Government Decree has not introduced any changes to the provisions set out in the EPT, and therefore, existing options continue to be available even in a period of emergency. This is all the more pertinent in view of the uncertainty arising in connection with the new Government Decree (i.e. the scope of suspension should cover tax enforcement proceedings in general and not be limited to enforcement proceedings that are pending).
Suspension comes into effect by operation of law, without any application by taxpayers or special decision by the tax authority, meaning that taxpayers with existing tax debts have no administrative obligations in this respect. The tax authority will not take any enforcement action until the 15th day after the end of the period of emergency declared in connection with COVID-19. For example, transfer orders or wage garnishments already initiated will be rescinded or suspended with immediate effect, and if amounts have already been transferred by or deducted from tax debtors, orders will be issued to refund them.
There are, however, exceptions not covered by the scope of the suspension, including certain enforcement actions initiated under the Code of General Administrative Proceedings, such as, for example, ordering a demolition, and certain monetary claims based on a request by the court as set out in the EPT (such as the collection of expenses or fines imposed in criminal proceedings or state-advanced expenses in civil proceedings), as well as enforcement actions for the collection of claims arising from violations of mandatory epidemiological measures prescribed during the period of emergency. The latter include, for example, non-compliance with certain provisions restricting the opening hours of certain shops and catering establishments, which, according to information provided by the Government, will be considered an offense subject to a maximum fine of 500,000 forints. (Relevant legislative provisions are currently in preparation.)
Provisions relating to enforcement proceedings by bailiffs
According to the Government Decree, in addition to enforcement proceedings before the tax authority, certain enforcement actions by bailiffs will also be suspended during the period of emergency. Such actions include, in particular, on-site actions concerning movable or immovable property, vacating of real property, auctioning-off of residential property, and certain other specific actions. The ban on enforcement by bailiffs does not, however, apply to collection on bank accounts or wage garnishments.
II. Government Decrees Nos. 58/2020 and 59/2020 on extending the periods of entitlement to childcare allowance, childcare benefit, and child-raising allowance
These government decrees extend the periods of entitlement to benefits relating to the care and education of children until the end of the period of emergency.
In practice, this means that parents who currently receive childcare allowance, childcare benefit or child-raising allowance, and whose entitlement to these benefits would expire during the period of emergency, will continue to receive these benefits during the period of emergency.
Benefits due to such persons – irrespective of the fact that their entitlement has in the meantime expired – must continue to be paid during the period of emergency.
This measure aims to ensure that mothers with children are not forced to return to the labour market to secure their finances due to having lost their entitlement to these benefits.
III. Government Decree No. 60/2020 on Measures to Improve Health Security of Contact Payments
A new measure concerns contact payments.
The above Government Decree raises the limit above which payments require payer (customer) authentication (by entering a PIN) from 5,000 to 15,000 forints.
This piece of legislation entered into force on March 25, 2020, and payment service providers have been given until April 15, at the latest, to make the necessary technical arrangements.
The Government Decree, which is meant to remain in force indefinitely, is primarily intended as a public health measure, and has also gained prominence in government communications, as encouraging contactless payments instead of using cash could (substantially) reduce consumers’ and vendors’ exposure to infection, and as such, has an indirect economic effect.
IV. Government Decree No. 61/2020 on the detailed regulations concerning taxes and dues of Government Decree No. 47/2020, and on new measures
Exemption from contributions and the social tax
The Hungarian government has introduced several measures to provide relief to businesses hit particularly hard by the economic situation created by COVID-19. These relief measures are mostly aimed at preserving jobs. The sectors most gravely affected include:
1. Taxi services
2. Accommodation services
3. Catering
4. Creative, arts and entertainment services
5. Sports, amusement and recreation activities
6. Gambling and betting services
7. Motion picture, video and television programme production, sound recording and music publishing
8. Convention and trade show organisation services
9. Newspaper publishing
10. Publishing of journals and periodicals
11. Programming and broadcasting activities
It is important to note that businesses may only receive the benefits if at least 30% of their income during the period between 24 September 2019 and 23 March 2020 was from one of the above activities. However, it is not clear from the wording of the decree whether the principal business activity registered with the Court of Registration should also be one of the above. This will be clarified later.
Businesses in the above sectors will not have to pay the 17.5% social tax and the 1.5% vocational training contribution for their employees or contractors participating in their business activities for the months of March, April, May and June 2020.
Within this four-month period, businesses will only have to deduct the 4% in-kind health insurance contribution from their employees’ salaries (rather than the 18.5% contribution), and the amount of contributions deducted may not exceed HUF 7,710 per month. This means that the income of employees and other individuals covered by social security will only be subject to 15% personal income tax and the health insurance contribution capped at HUF 7,710 per month.
Employees in these sectors will only pay a minimum of contributions during this period, but they will continue to be entitled to full pension, sick leave and maternity benefits. For example, the pension of these individuals will have to be calculated as if they had paid the full 10% pension contribution during the four months in question.
Employers in the affected sectors will also not have to pay the rehabilitation contribution for these four months (i.e. one third of the annual amount will be waived). In addition, businesses will also be exempted from paying quarterly advances on the rehabilitation contribution for all of 2020, so they will not have to pay the rehabilitation contribution for Q1 2020. (The rehabilitation contribution is generally payable by companies with at least 25 employees unless 5% or more of their staff are persons with disabilities.)
Employers who have opted for the flat-rate small business tax (“KATA”) and are active in the sectors listed above will determine their tax according to specific rules. In particular, from March through the end of June 2020, payments to personnel (which primarily means wages) will not have to be counted as part of the small business tax base. However, if the companies concerned approve dividend payments or otherwise withdraw assets from the company, they will have to pay the small business tax in accordance with the general rules.
Moreover, micro-enterprises subject to KATA with a broader set of activities than those described above will not have to pay the monthly KATA sum (HUF 25,000, 50,000 or 75,000) for March, April, May and June 2020. A further relief for small enterprises subject to KATA is that, regardless of the sector in which they operate, they may pay any arrears arising from their lump-sum tax due before 1 March 2020 or from the 40% special tax in ten equal monthly instalments from July 2020, free of charge.
As can be seen above, both the range of eligible businesses and the scope of employment-related benefits have been significantly extended compared to the provisions of the government decree issued on 18 March 2020.
We note that Government Decree No. 61/2020 specifies a broader range of taxpayers for KATA exemption than for the reduction of taxes and contributions on employment. However, a common point in defining the scope was to provide quick relief to a wide range of taxpayers affected by the crisis, and to those whose livelihood depends on the continued operation of these businesses.
Contacts:
László Deák
Service Line Leader
laszlo.deak@pwc.com
Barbara Koncz
Director
barbara.koncz@pwc.com
Krisztina Kőmíves
Director
krisztina.komives@pwc.com
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