We’re delighted to share that Andersen´s Corporate and M&A team has been recognized in the Chambers and Partners Europe 2023 Directory. Once again, we’re proud to record 69 individual recognitions and 35 practice areas recognitions in the Corporate and M&A field.
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LEGAL 500 2023 – Our lawyers in prestigious positions again
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In the recently published 2023 listing of The Legal 500, one of the best-known and most prestigious independent legal rankings, Szabó Kelemen & Partners Andersen Attorneys was ranked in 7 different categories. With this, the office has repeated the great results of the previous year.
Szabó Kelemen & Partners Andersen Attorneys was rated TIER3 in seven different categories based on client feedback. These are the following:
- Banking, Finance and Capital Markets
- Commercial, corporate and M&A
- Competition
- Dispute resolution
- Employment
- Projects and energy
- Real estate and construction
With this result, the office strengthened its prominent position in the group of leading law firms in Hungary.
In addition, to our great honor, the editors of the publication ranked one of our colleagues, Dr. László Kelemen (Attorney-at-Law, Managing Partner) among the best Leading Individuals in Hungary in the Competition category.
M&A Full Year Review
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Despite the fact that the total number of deals in 2022 fell short of the record-breaking number of deals achieved in 2021, they still managed to exceed pre-pandemic levels.
The pace of M&A transactions remained strong throughout the year, but experienced a notable slowdown in the last quarter. Stay tuned for our upcoming report, which will provide a comprehensive overview of the M&A landscape in this first quarter as well as M&A trends for the second half of 2023.
Extended Producer Responsibility – Significant changes in the Hungarian green tax legislation
by sbarbara
Despite certain minor variations, the Hungarian green tax legislation has barely changed from a structural perspective in the past 10 years. The main logic behind the green tax is driven by the polluter-pays principle: in the case of certain goods, the green tax must be paid upon the first domestic sale and the first use for own purposes while the amount of the liability is on-charged until the level of the consumer. The regime also applies various exemptions and refund opportunities together with assumptions suppliers can use to avoid their green tax liability. The current legislation is quite bureaucratic, and in many cases, it is not the tax liability itself but rather its administration that can create big challenges for companies.
From 1 July 2023, however, the system will become even more complex, as the Hungarian government will introduce the so-called extended producer responsibility (“EPR”) system whose detailed provisions have been published just recently by a long-awaited regulation. Based on the regulation, EPR will affect producers, distributors as well as various service providers, too. New concepts will need to be learned such as circular economy, circular products, KF code nomenclature and so on.
In the following, we summarize the most important changes starting 1 July 2023, including some of the expected details of the new deposit fee regime (to be introduced from 2024); this latter lacks a final regulation as of today but its draft regulation has been published.
Green tax’s new role
Currently, the green tax serves two purposes: first, it is a financing tool for the Hungarian waste management system, and second, it increases the price level of goods harmful to the environment. From July 2023, the first role will be shifted to the new EPR regime, leaving the green tax’s single purpose as the price adjustment of harmful goods.
The two systems, however, will remain closely connected to each other: taxpayers will be entitled to deduct their EPR liability from their green tax liability.
Circular products
The new legislation introduces the concept of the so-called “circular products” for goods subject to the EPR liability. The scope of the circular products will mostly overlap with the scope of the green tax products, such as packaging/packaging materials, batteries, electronic products, tires, etc. However, the new regulation will include additional products that fall under the definition of circular products, namely textile products, wooden furniture, disposable plastic products, vehicles, cooking oil, and fat. Furthermore, certain green tax products will not qualify as circular goods, so a thorough classification at the side of each taxpayer will be a must in the forthcoming weeks.
In the new system, manufacturers of circular products or – in case the related products are manufactured abroad – the first Hungarian distributors will be liable to pay a so-called extended producer responsibility fee (“EPR fee”). Additionally, if circular products are not sold but used in Hungary for own purposes, the EPR fee liability will also arise.
The new regulation introduces a new nomenclature: the system of KF codes. KF codes will serve as the basis for the reporting, payments, exemptions and assumptions.
Although the scope of circular products is limited, the fact packaging also falls under it means that EPR will affect the entire trade in goods.
Exemptions, customer’s export declaration, assumption
In some cases, the supply can be exempted from the EPR fee, namely where circular goods are sold in a bonded, tax or green tax warehouse, or the goods are exported outside Hungary. In the case of the sale of businesses, EPR liability will not arise if the sale meets the requirements of the conditions of the VAT TOGC simplification.
The EPR fee will not be applicable if the customer informs the supplier in a pre-determined way that it will export the goods later on. As cars and many car parts (batteries, electronic appliances and tires) are subject to the EPR fee, car manufacturers will be entitled to assume the EPR liability of their suppliers on the parts to avoid double payment of the liability.
Mandatory deposit fee regime will be introduced from 1 January 2024
Half a year after the introduction of the EPR system, the legislation will become even more complex with the introduction of the so-called deposit fee regime. The new deposit fee system will replace the current not-so-popular deposit system for glass, plastic, and metal beverage bottles.
According to the draft regulation, the price of the said goods will need to include a deposit fee to be refunded to customers when returning the goods. Manufacturers or first domestic distributors will need to work closely with the companies that will distribute their products. These latter companies (if exceeding a certain size) should install automated systems for the return of bottles. Furthermore, within the deposit fee regime, manufacturers and first domestic distributors will have to pay certain fees to the concession company for the construction and management of the waste recovery infrastructure.
Following the model for the deposit fee regime, companies can decide to implement a deposit fee system for other recyclable products (voluntary deposit fee system).
Companies subject to the deposit system will be exempted from both EPR and green tax liabilities.
Administration
The introduction of the EPR system and the new deposit fee regime is going to pose a significant burden for taxpayers in terms of administrative duties. The said systems will require separate registrations, record-keeping, and quarterly data reporting obligations. Invoices issued by producers and distributors need to include various clauses.
Registration and sanctions until 31 May 2023
The deadline for the two-step registration in the EPR system is 31 May 2023.
Conducting any business activity with circular products without registration will result in penalties and suspension of the activity if the taxpayer does not comply with these obligations after the fine is imposed.
Conclusions
As can be seen, the provisions related to the green tax will become more and more complex in Hungary. The EPR regime offers many possibilities for exemption purposes. However, the fast-approaching deadline for registration urges taxpayers to review their EPR and green tax liabilities as soon as possible. If there is no room for exemption, taxpayers still need to check their activities, set the KF codes of the circular products they are operating with and perform the associated administrative liabilities until July 2023.
Should you require any help with the above, Andersen is ready to assist you.
Szabó Kelemen & Partners Andersen Attorneys ranked in Chambers Europe 2023
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We are proud to share that, similarly to last year, the firm is ranked in the Employment category of Chambers Europe 2023. This is the 14th consecutive year when Szabó Kelemen & Partners Andersen Attorney is listed on this prestigious ranking.
The firm assists clients with employee transfers and outsourcing agreements. It often advises clients on drafting contracts and employment policies, including remote working policies and collective bargaining agreements. The law firm acts on disciplinary proceedings and employee terminations, including collective redundancies. The team also assists with employee benefit matters and immigration issues.
Szabó Kelemen & Partners Andersen Attorneys is ranked as Band4 legal firm in the Employment category. The Head of the Employment Department is Szilvia Fehérvári.
Post M&A Disputes and Current Challenges
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The closing of a transaction may be of joy for the teams involved, however it also poses some challenges due to constant uncertainty, the strategic nature of transactions and the politics behind it.
Andersen´s European Arbitration and Litigation team has prepared their latest newsletter analyzing issues related to disputes in post-M&A transactions, what the causes of disputes may be, what the jurisdiction of the ordinary courts is, and whether arbitration is better in such situations.
Southeast Asian tax specialist joined Andersen Hungary
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Opening up to Far East markets has emerged as a new strategic element of Andersen’s medium-term plans. The company’s goal is first of all to approach those Asian businesses and large corporations which have operating investments, sites, manufacturing capacities or subsidiaries in Hungary, or are laying the groundwork for such investments. The signing of an experienced Southeast Asian tax specialist was an important step in this process. Ngwe Lin Myat Chit worked for 10 years in Cambodia, Myanmar and Singapore for various consulting firms, including VDB Loi which is Andersen’s collaborating partner in the region. In this interview with her, we talked about her experiences, her new role, and her professional goals.
Why did you decide to continue your career in Europe?
Ever since I embarked on my career as a tax advisor, I became very passionate in terms of how tax plays a vital role in corporate structures. My ten years of tax experience in Southeast Asian countries has urged me to enhance my technical knowledge from a jurisdictional to international perspective as I aspire to become one of the best international tax experts.
With the Organization for Economic Co-operation and Development (OECD) implementing the global minimum tax this year which will transform the international tax landscape, I understand that all the exciting changes in terms of international tax planning and corporate structuring would be happening in the European countries where majority of Multinational Corporations (MNCs) are headquartered. Therefore, I believe it is the right time for me to continue my career in Europe as I would have the chance to have first-hand experience working with those MNCs reviewing and restructuring their corporate structures to be aligned with global minimum tax requirements.
When did you join Andersen Hungary? Why did you choose this company?
I joined Andersen Hungary back in January 2023. I have extensive background in both direct and indirect taxes, particularly in the area of corporate tax structuring, cross-border tax planning, tax optimization of commercial contracts, tax due diligence, tax compliance, and tax dispute matters for a wide range of industries. Therefore, when making my career move, my main consideration is to have a chance to work with the best team in the country where I can not only contribute but also further progress both my professional and personal goals.
Speaking from my personal experience working at the Andersen collaborating firm, VDB Loi, in Southeast Asia before, I know that Andersen always collaborates with the best firms in the country. Andersen Hungary winning not only the “Tax Firm of the Year” two years in a row but also the “Indirect Tax Firm of the Year” in 2022 on top of being selected as a Tier 1 tax firm as per the assessment of the International Tax Review has assured my decision of choosing to work at Andersen Hungary as I believe it would be the place where I can best showcase my seasoned experiences while making my career progress.
Did you know anything about Hungary before?
I was familiar with Hungary for its rich culture, beautiful architecture, as well as great food as I have been to Budapest as a tourist while I was doing my master program in Sweden. Also, while researching for my relocation purposes to Europe, I learnt that Hungary has one of the fastest growing economies in central Europe with the most favorable corporate and personal income tax rates which therefore is becoming an attractive destination not only for foreign investments but also for individual digital nomads. As a tax expert, my knowledge about Hungary was quite limited to the extent of my technical field before. However, now that I am living and working in Hungary, I am learning more about the culture and history of the country as well as the language so that I would be able to appreciate the real essence of the country I am living in.
How do you feel in Budapest?
Relocating to a new country indeed has exciting yet challenging experiences especially since I come from a totally different culture and don’t speak the language here yet. But based on my experience so far, I feel Budapest is welcoming and I like the city not only for its breathtaking architecture and scenery but also for its vibe in terms of the different atmospheres offered by the two sides of the city.
My workplace on the Buda side is surrounded with the beautiful sight of the mountains and greenery of the parks whereas my place on the Pest side is more like a typical big European city surrounded with historical and cultural buildings thriving with tourists and international students. Even the weather on the two sides of the city can be quite different on the same day; Buda side may be covered with snow but that doesn’t mean there will be snow on the Pest side for that day. That really makes me feel like I am living in two different cities at the same time.
Do you already have a favorite Hungarian dish?
Another thing I like about Hungary is for its food. I am a fan of spicy food and Hungary also being popular for its famous paprika. I really like the fact that there is always an option of choosing a spicy food from the menu. My favorite Hungarian dish so far is roasted duck with cabbage and also Lángos, which tastes similar with my favorite food, E Kyar Kway (also called Youtiao in Chinese), from my home country, Myanmar.
Based on your experience so far, what are the biggest differences between your previous workplaces and Andersen Hungary?
One of the major differences between my previous workplaces in Cambodia, Myanmar & Singapore and Andersen Hungary would be the working cultural differences between Asian and European countries. Basically, Asian workplaces tend to work in a more fast-paced environment whereas here in Andersen Hungary, there is more flexibility and have more work-life balance.
Another difference would be the cultural diversity in the workplace as there were more international expats with different cultural backgrounds in my previous workplaces as Southeast Asian countries like Myanmar and Cambodia are becoming popular among expats from all around the world due to lower living costs.
At Andersen Hungary, I am the very first and only non-Hungarian person on top of being Asian. However, despite that I am very grateful to have colleagues and partners who are very welcoming and helping me in every bit with my relocation to a new country as well as adapting to the new workplace.
What is your role at the company? What areas or services are you responsible for? What is your main task?
I am a senior advisor at the firm advising and helping clients in terms of tax planning, tax structuring and tax compliance for both corporate and individual taxation matters in Hungary. Also, I am part of our firm’s focus team who will be advising and helping clients with global minimum tax requirements on their current corporate structures. In addition, I am responsible for Asian focused business developments not only for Hungary but also for other Central European countries by collaborating with Andersen firms in the region as well as other Andersen collaborating firms in Asia.
Does Andersen Hungary already have any relations with Asian companies?
Of course. As Hungary is becoming popular among Asian investors as well for its favorable tax rates, incentives and investment subsidies, Andersen Hungary is already offering our assistance to Asian clients with our dedicated team helping to obtain state aid and grants, tax credits as well as tax incentives. With my contribution as well in terms of my technical expertise and experiences handling Asian clients, I believe we would be in a stronger position to further our services to Asian companies for a wider range of service lines.
What are your goals? What results would you be satisfied with in the short and long term?
Being the focal person for Asian clients and investments in Asia, my short-term goal is to expand our existing Asian client base by offering the services tailored to the needs of Asian investors thereby bridging any cultural differences. My long-term goal is building up a dedicated regional team for the tax structuring and planning by working closely with Andersen firms in the region.
DEBRA directive: tackling debt-equity bias
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The proposal of the European Commission, published in May 2022, addresses the issue of asymmetrical tax treatment of the use of debt and equity (the “DEBRA Proposal”). According to the EU, the tax-driven debt-equity bias results in favouring the use of debt over equity for investment financing, creating an unstable and vulnerable economic environment. The DEBRA Proposal aiming to tackle this bias, is expected to be applicable as from January 1, 2024 in the EU Member States. A grandfathering clause would apply for EU Member States, where domestic rules on allowance for equity financing are already in place, securing a transitional period up to 10 years.
Scope
The DEBRA Proposal targets all taxpayers that are subject to corporate income tax in one or more Member States, except for financial undertakings such as credit institutions, investment firms, AIFs, AIFMs, UCITS, UCITs management companies, insurance and reinsurance undertakings, pension institutions, securitization vehicles and crypto-asset service providers.
Proposed rules
The DEBRA Proposal lays down rules (i) to provide, under certain conditions, for the tax deductibility of notional interest on increases in equity and (ii) to limit the deductibility for tax purposes of the exceeding borrowing costs.
Allowance on equity
A new tax allowance for equity increase would be applicable with the following major conditions:
- the allowance base is calculated as the positive difference of the equity of a given tax year and the following one;
- the allowance base is then multiplied by the notional interest rate (NIR), composed by two elements: the currency specific risk-free rate, plus a risk premium of 1% (1.5% for SMEs), resulting in the allowance amount;
- the allowance amount shall be deductible for 10 years, starting from the tax year of granting; the deductibility is however limited up to 30% of the EBITDA of the given year with the possibility to carry forward the exceeding amount.
Anti-abuse rules
The allowance base will not include equity increases that result from the following transactions:
- Intra-group loans, intra-group transfer of assets and cash contributions from a person resident in a jurisdiction that does not exchange information with the taxpayer’s Member, unless the taxpayer would provide sufficient evidence that the relevant transaction has been carried out for valid commercial reasons and does not lead to a double deduction of the allowance on equity;
- Contribution in kind or investment in an asset, where the relevant asset is not necessary for the performance of the taxpayer’s income-generating activity;
- Reorganisation of a group that results in converting into new equity the equity that already existed in the group before the reorganisation.
Limitation of interest deductibility
The DEBRA Proposal would also introduce a new limitation on interest deductibility that would be limited to 85% of the exceeding borrowing cost (i.e. interest expenses minus interest income) and which would be applied in parallel with the existing interest limitation rule provided for in Article 4 of Council Directive (EU) 2016/1164 (the “ATAD”). The rule in the DEBRA Proposal would apply first, meaning that where the ATAD rule produced a lower interest deduction allowance, the taxpayer would be entitled to carry forward or back the difference in accordance with Article 4 of ATAD.
Andersen well ahead of growth plans
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The sales revenue of Andersen Adótanácsadó Zrt., a member of Andersen Hungary reached HUF 2.1 billion in 2022, which is almost 40 percent up on the previous year. This considerably exceeds the annual growth rate of 10-15 percent envisaged by the management. With this performance, the Budapest-based company further reinforced its position in the market of tax advisory services.
In 2022, despite the negative economic trends, Andersen Adótanácsadó Zrt. was able to substantially improve the impressive growth rates of the previous years. “There is considerable progress in all of our business lines and service areas. With the overall 40 percent growth in sales revenues, we are well above the market average. The last time we were able to jump this much was in 2016, when our base was just a third of the current size,” said Károly Radnai (CEO) about last year.
Outperforming business lines
It is worth underlining the service areas that performed above the 37 percent average. The tax allowances and state subsidies business lines top the list. It practically doubled its sales revenues compared to 2021. Andersen has made no secret of its ambition to break the dominance of the BIG4 in this area and provide the highest level of service in Hungary. There was also a massive growth in the areas of indirect tax (VAT, customs, product fees) and M&A advisory (restructuring, acquisitions and transaction tax planning), with the former generating 63 percent and the latter around 73 percent more sales revenues compared to the previous year.
Andersen’s tax services for the film industry deserve special attention, as they report growth of almost 50 percent. This business line had always been one of the best performing industry lines of Andersen and with this performance Andersen Adótanácsadó Zrt. has further reinforced its position as the market leader in tax advisory services to the film industry in Hungary.
ITR: Andersen was designated again Tax Advisor of the Year in Hungary in 2022
Alongside its business results, professional feedback and recognition also show a very positive picture of the quality of Andersen’s work and the services it provides. According to the assessment of the prestigious international tax magazine, the International Tax Review, Andersen Adótanácsadó Zrt. was the best performing Hungarian tax advisor again in 2022. For the second year in a row, the company has earned the highest professional accolade of the year, while also collecting the Indirect Tax Firm of the Year award.
Reaching out to Asian clients
Opening up to Far East markets has emerged as a new strategic element of Andersen’s medium-term plans. “The goal is first of all to approach those Asian businesses and large corporations which have operating investments, sites, manufacturing capacities or subsidiaries in Hungary, or are laying the groundwork for such investments. In this regard, we do not only intend to provide special services for our Far Eastern clients but we also develop our professional team continually”, outlined the plans Károly Radnai.
2023 remains a year of growth and expansion
Together with the Szabó, Kelemen & Partners Andersen Attorneys, Andersen Adótanácsadó Zrt. is a member of Andersen Hungary. The Budapest-based tax consultancy and law firm is currently the fifth largest player in the Hungarian market after the BIG4 companies. Andersen Hungary has over 100 employees at its clients’ disposal. In order to maintain the growth rate outlined in the business plan and to satisfy client needs, Andersen Adótanácsadó Zrt. will continue to expand its team of professionals in 2023.
Remote Work in Europe
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Andersen´s European Employment and Labor Law has prepared a new edition of the European Guide to Support Employers – Remote Work in Europe.
Remote work is a rapidly growing trend in the European job market. Although the concept goes back more than 50 years, and in some European countries the issue was first regulated by law over 20 years ago, it has become far more widespread since the pandemic. Currently, the majority of employers realize that, sooner or later, remote, tele- or hybrid- work will unavoidably need to be implemented as a permanent solution rather than as an ad-hoc method of work in emergency situations (or whenever office work proves impossible).
Much has changed in the last two years, not only in the job market but also in the legislation of individual countries. This publication seeks to shed greater light on the legal solutions currently implemented in 29 European countries, from the types of telework and the procedures for its implementation, through the obligations imposed on employers and the rights of employees to aspects of liability.
The Hungarian chapter was written by dr. Szilvia Fehérvári.
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