Tax Facilities Necessary to Mitigate the Economic Impact of the Coronavirus Pandemic

Tax & Legal Alert | PwC Hungary | April 24, 2020

On 21 April, Government Decree No. 140/2020 (IV. 21) on Tax Facilities Necessary to Mitigate the Economic Impact of the Coronavirus Pandemic within the framework of the Economic Relief Action Plan was published in Magyar Közlöny (the official government gazette). The new Government Decree contains provisions on the facilitative tax measures introduced in connection with the current epidemic situation, and on the adjustment of tax-related deadlines and due dates.

Extension of tax filing and payment deadlines

Under a measure intended to provide relief in terms of tax liabilities and liquidity, taxpayers have been given until 30 September 2020 to fulfil the following annual and special tax-related obligations that become due between 22 April 2020 and 30 September 2020:

the obligation to assess, file and pay corporate tax, as well as the obligation to assess and file tax advances together with the annual corporate income tax return;
the obligation to assess, file and pay small business tax, as well as the obligation to assess and file the related tax advances;
the obligation to assess, file and pay energy suppliers’ income tax, as well as the obligation to assess and file tax advances together with the annual tax return;
the obligation to file a local business tax return and, at the same time, pay local business tax, as well as the obligation to file a tax advance return for the next tax advance payment period;
the obligation to assess, file and pay innovation contribution, as well as the obligation to assess and file innovation contribution advances together with the annual return on such contributions.

Facilitative measures concerning tax advances

If, taking advantage of the above facilitative measures, a taxpayer does not file a local business tax return by the due date of the first instalment due in 2020 (i.e. if using the calendar year as the financial year, by 15 September 2020), it will be required to pay the amount of the tax advance that had been declared previously. Payment facilities can be requested until the due date, provided that, according to the taxpayer’s calculation, the tax for the tax year starting in 2020 is less than the amount of the tax advance calculated for the tax year.

With regard to advances on corporate tax, small business tax, and energy suppliers’ income tax, as well as innovation contribution, taxpayers will be required to pay such advances in the amount and on the schedule applicable to the tax or contribution advance liability established in the last tax advance return available to the taxpayer. Payment facilities can be requested in the same manner as in the case of local business tax.

This means that the Government Decree does not permit deferral of the payment of advances for local business tax, corporate tax, innovation contribution, small business tax, or energy suppliers’ income tax, rather, it provides special rules for determining the amount of tax advances.

Practical considerations

The earlier announcement on deadline extensions raised several practical questions among our clients, which, in the majority of cases, have been answered by this Government Decree.

The question may be raised as to whether it is possible to file a return and settle the tax liability at an earlier date, for example taking into account a due date of 31 May, as applicable before the issue of the Government Decree. Naturally, taxpayers do have the option to do so, and such a return, as the last available tax advance return, will need to be used as the basis for determining the tax advances that will become due later. We note that taxpayers may also decide to meet their tax filing and payment obligations at different times, within the statutory deadlines, i.e. a taxpayer whose financial year is the same as the calendar year may file its annual corporate tax return in May 2020, and settle the related tax payment obligation by 30 September 2020.

Although the Government Decree does not specifically mention taxpayers whose financial year differs from the calendar year, in our opinion, its provisions apply to all taxpayers whose obligation to assess, file and pay taxes, as well as to assess and file tax advances together with the annual tax return becomes due in the period between 22 April and 30 September.

While the Government Decree includes provisions on the special obligations of companies undergoing transformation, merger, or division to assess, file and pay taxes, it does not provide clear guidance with respect to companies that are undergoing voluntary or involuntary liquidation, or involuntary strike-off, and have a filing deadline during the period concerned.

In the light of the Government Decree, it is an interesting practical question whether a tax form will be issued that can handle due dates correctly for the purposes of automatically calculating and completing tax advance fields if the form is submitted after 31 May.

Extension of financial reporting deadlines

The facilitative measures as regards reporting are intended to ease the obligation stipulated by Section 154 (1) of Act C of 2000 on Accounting, according to which “all companies that keep double-entry books (including Hungarian branches of non-resident companies) must issue their financial statements or simplified financial statements, and, if they are subject to statutory audit, include the independent auditor’s report containing an audit opinion or disclaimer of opinion.”

The deadline for issuing the financial statements is stipulated by Section 153 (1) of the Accounting Act: “Companies that keep double-entry books and are registered in the company register must file their financial statements or simplified financial statements approved by the duly authorised body, and, if they are subject to statutory audit, include the independent auditor’s report containing an audit opinion or disclaimer of opinion, as well as the decision on the appropriation of after-tax profit (approval of dividend payment) by the last day of the fifth month following the balance sheet date of the financial year in question. The financial statements or simplified financial statements filed must be in the same format and have the same content (wording) as those examined by the auditor.” For businesses using the calendar year as the financial year, this deadline is 31 May.

Under the Government Decree, the deadlines for preparing, publishing and issuing financial statements that fall between the effective date of the Government Decree and 30 September 2020 will be extended until 30 September 2020. The deadlines for other accounting obligations to be met on the basis of these financial statements must be determined in accordance with the extended deadline. As a result, the deadline for consolidated financial statements of parent companies will also be extended.

Public-interest entities

The above facilitative measure does not apply to financial statements of public-interest entities as defined in Section 2 (19) of Act LXXV of 2007 on the Hungarian Chamber of Auditors, Auditing and the Public Supervision of Auditors. Pursuant to the above legislative provision, public-interest entities are entities whose negotiable securities have been accepted for trading on a regulated market of an EEA state or that qualify as such under any other regulations. EEA regulated markets are registered by the European Securities and Markets Authority. Entities regarded as public-interest entities in accordance with other regulations comprise credit institutions, insurance companies (except for small and mutual insurance companies as defined in the relevant legislation), investment firms, and investment fund management companies that manage investment units of exchange traded funds. Public-interest entities will be required to issue their financial statements by the originally set deadline.

It is important to note that the Government Decree contains the concept of later issuance as an option. Entities may take several factors into account when considering whether or not to take advantage of this option.

The information needs of users of financial statements

Financial statements are generally aimed to meet the information needs of stakeholders. Therefore, when issuing the financial statements at a later time taxpayers will need to be bear this aspect in mind. Financial statements may be directly used by owners, creditors, suppliers, management, tax authorities, employees and customers. If financial statements are issued at a later time the question may arise whether the entity will still provide relevant information to stakeholders, and how stakeholders and market participants will see the entity’s decision on later issuance. Entities with a stable level of net assets, a solid financial position and profitability convey a positive message by issuing their financial statements in line with the practice of previous years, by the originally required deadline. Later issuance may create uncertainty for market participants.

Distribution of dividend

Entities paying dividends to their ultimate owners through several companies should take further factors into account when considering later approval of the financial statements. According to Section 39 (3) of the Accounting Act, “distributable retained earnings supplemented by the after-tax profit from the previous financial year may be distributed as dividend, profit-sharing or interest on interest-bearing shares only if the amount of equity less non-distributable reserve and positive revaluation reserve does not fall below the amount of subscribed capital following payment of dividend, profit-sharing or interest on interest-bearing shares. When determining the amount of distributable retained earnings and equity referred to in (3), the amount of dividends, profit-sharing (received or due) in accordance with Section 84 (1) not yet shown in the financial statements for the previous financial year but recognised in the reporting year by the balance sheet preparation date may be taken into account as an increasing item.” In such cases, it is important to set up the group’s timeline for closing the accounts, approving the financial statements and making the decisions about dividend payment. Therefore, member companies of such groups should consult their parent companies on a potential later approval of the financial statements and the consequences of such a decision.

Liquidity

With the extended deadline for submitting tax returns and paying taxes, companies may improve their liquidity position by delaying declaration and payment of taxes until 30 September, as allowed under the amended legislation, even if they decide to issue their financial statements by the original deadline.

Legislative framework for adopting financial statements

We would like to draw your attention to our earlier Tax and Legal Alert, which provides detailed information on the legislative framework for legal entities for operating in an emergency, including how decision-makers may ensure legal compliance in connection with the adoption of their company’s financial statements in the current emergency.

Tourism tax suspended

Tourism may be positively affected by the fact that taxpayers concerned will not be required to pay tourism tax, nor will entities tasked with collecting and paying such tax be required to do so, in connection with guest nights spent between 26 April 2020 and 31 December 2020. Tourism tax assessed but not collected will, however, have to be declared to the tax authority, unless the amount concerned is zero.

Changes to tax administration rules due to the emergency

Facilitative measures concerning taxpayer classification

In accordance with Act CL of 2017 on the Rules of Taxation (“ART”), the tax authority classifies taxpayers registered in the company register, as well as tax group members and VAT-registered taxpayers, on a quarterly basis. According to the criteria laid down in the ART, taxpayers can be divided into one of the following two categories: reliable or high-risk. Taxpayers that do not meet the criteria for either category are treated by the tax authority as “neutral” taxpayers.

The Government Decree has introduced the following facilitative measures in connection with taxpayer classification for the duration of the emergency period:

Reliable taxpayer status cannot be revoked on account of a tax difference established for failing to fulfil a tax obligation that becomes due during or within 30 days of the end of the emergency period. The tax authority will not take such tax differences into account when classifying taxpayers during or after the emergency period.
Reliable taxpayer status cannot be revoked if the taxpayer becomes subject to an enforcement procedure during or within 30 days of the end of the emergency period, or incurs a net tax debt exceeding HUF 500,000, or has no positive tax performance in the given year. The tax authority will not take the above into account when classifying taxpayers during the emergency period or following the quarter that includes the 30^th day after the end of the emergency period.

Therefore, according to the Government Decree, a tax difference established for failing to fulfil a tax obligation that becomes due during or within 30 days of the end of the emergency period cannot be the reason for revoking a taxpayer’s reliable taxpayer status during or after the emergency period. Moreover, this tax difference cannot be taken into account in classifications carried out during or after the emergency period.

However, it is important to stress that, in order to be granted reliable taxpayer status and to maintain that status, the conditions not covered by the Government Decree should continue to be met; e.g., taxpayers whose tax number was deleted or who became subject to liquidation proceedings in the past five years will still not qualify as reliable.

New payment facilities

In addition to the tax concessions laid down by the ART, the Government Decree allows for a new form of payment facilitation in view of the emergency. Under the new rules,

if requested by the taxpayer by the 30^th day following the end of the emergency period,
for a tax amount of up to HUF 5 million,
on one occasion,
the tax authority may grant a deferral of up to six months or payment in twelve monthly instalments free of charge

if the taxpayer can prove, or it is evident at the time the request is submitted, that their payment difficulty is due to the emergency.

Tax reduction for non-natural person taxpayers

As a general rule, under the ART, the tax authority may only reduce tax debts, fines and surcharges for natural persons. However, under the Government Decree that has just been published, non-natural person taxpayers have also been given the opportunity to apply for tax reduction, subject to certain conditions:

if requested by the taxpayer by the 30^th day following the end of the emergency period,
the tax authority will reduce the tax debt incurred by the taxpayer
on one occasion,
by up to 20% but not exceeding HUF 5 million

if payment of the tax debt would render the applicant’s continued business operation impossible as a result of the emergency.

It is important that the tax reduction may only be requested for one tax type, and the payment facilities introduced by the Government Decree and the tax reduction cannot both be applied to the same tax debt.

The procedures for the above payment facilities and the tax reduction are free of charge, and the deadline for making a decision is fifteen days in both cases. At the time of writing this summary, the forms for requesting the payment facilities and the tax reduction have not yet been published on the tax authority’s website. We note, however, that the form for requesting payment facilities set out in the ART has been simplified.

Disclosure of information concerning taxpayers with a large tax debt or tax shortfall

When disclosing information concerning taxpayers with a large tax debt or tax shortfall during the emergency period or after the quarter which includes the 30^th day following the end of the emergency period, the tax authority will not take into account any tax debt or tax shortfall established for tax obligations that become due during or within 30 days of the end of the emergency period.

Facilitative measures concerning the Electronic Road Freight Control System (EKAER)

The taxpayers concerned will not be required to provide a risk deposit during the emergency period and until the 30^th day after the end of the emergency period.

The tax authority will take immediate ex officio measures to refund taxpayers any risk deposits paid to the separate deposit account prior to the effective date of the Government Decree, and forward its consent to termination of the related guarantees to the financial institutions concerned.

During the emergency period, special exemptions from EKAER reporting for specific routes will remain valid, and compliance with the relevant conditions will not have to be checked.

Annual review of cash registers and food and beverage vending machines

According to the Government Decree, operators of cash registers or food and beverage vending machines must ensure that any annual review of such equipment that becomes due during the emergency period is performed within 120 days of the end of the emergency period.

Entitlement to healthcare services

Measures concerning healthcare contributions could represent a significant relief for employees who are already facing difficulties. Under the current rules, employees who take unpaid leave are no longer considered insured for healthcare purposes, and are therefore only entitled to medical care if they pay healthcare contributions, at HUF 7,710 per month.

Under the Government Decree, from 1 May 2020 until the 12^th day of the month following the month concerned, employers must assess, file and pay healthcare contributions on behalf of employees who are on unpaid leave during the period and as a result of the emergency.

At the request of employers, the tax authority will authorise payment of healthcare contributions assessed and filed as described above until the 60^th day after the end of the emergency period.

Social tax rate reduced and other related provisions

From 1 July 2020, the social tax rate will be reduced by two percentage points, from 17.5% to 15.5%. This measure is expected to reduce companies’ wage costs by 1.7% and lower their expenses relating to fringe benefits and entertainment in the second half of this year.

For certain occupations, such as artists and journalists, social tax will be replaced by simplified entrepreneurial tax and contribution (ekho). This means that the employer-paid portion of ekho will also be reduced to 15.5%.

Finally, companies that are registered for small business tax and employ up to 100 persons will be required to pay small business tax instead of social tax. Accordingly, the rate of small business tax will be reduced from 12% to 11%.

‘SZÉP Card’ benefits increased and exempted from social tax

The Government Decree has increased the thresholds for amounts that may be provided as fringe benefits on SZÉP Cards in 2020.

Accordingly, amounts may be transferred to SZÉP Cards up to:

HUF 400,000 to the Accommodation sub-account,
HUF 265,000 to the Catering sub-account, and
HUF 135,000 to the Leisure sub-account,

as fringe benefits.

Fringe benefits provided on SZÉP Cards until 30 June 2020 will not be subject to social tax.

In addition, the annual threshold (the amount of fringe benefits that may be provided at reduced or zero social tax) has been raised to HUF 400,000 for budgetary entities and HUF 800,000 for other employers for 2020.

Shorter VAT refund periods for SMEs

In addition to the facilitative tax measures provided in the Government Decree, on 20 April the Ministry of Finance announced further measures, which target SMEs, on the website of its State Secretariat for Tax Affairs.

According to the related announcement, the SMEs concerned may receive their VAT refunds in up to 30 days instead of the previous 75 days, and that period may be further reduced to 20 days for companies that qualify as reliable taxpayers.

The announcement points out, however, that the measure does not apply to high-risk taxpayers, who will continue to receive their VAT refunds within 75 days.

This measure is applicable to VAT refunds claimed in VAT returns submitted on or after 20 April.

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Should you have any questions regarding the summary above, do not hesitate to contact our experts.