In October 2021, along with 136 states, Hungary joined the countries that signed the OECD’s international tax reform plan. Soon after that, in December 2021, the OECD Model Convention on the Global Minimum Tax and the draft EU directive came out, within a few days of each other. It therefore caused quite a stir when, at the meeting of EU finance ministers in June this year (the ECOFIN meeting), the Hungarian government unexpectedly announced that it did not support the adoption of the directive because it would lead to tax increases, a deterioration of Hungarian competitiveness and, overall, a loss of jobs in Hungary.
In addition to the Hungarian veto, the lack of approval of the global minimum tax principle by the United States Senate and the Russian-Ukrainian war also contributed to the fact that the originally set deadline of 31 December 2022 for the implementation of the rules of the global minimum tax became impossible. Now, however, due to the current agreement, Hungary, along with the other Member States, undertook to implement the rules of the 15% global minimum tax into its legal system by 31 December, so the new rules (with some exceptions) will come into force on 1 January 2024.
According to the official communication, the Hungarian government gave up its veto after receiving written confirmation from the General Secretariat of the Council of the European Union that the main characteristics of the local business tax (“LBT”) meet the conditions set out in the directive to be able to take it into account in the so-called effective tax rate. This confirmation has great importance because previously neither the OECD model rules nor the EU directive clarified this issue. The eligibility of LBT is crucial for Hungary, since by being able to take it into consideration in the effective tax rate, the effective tax burden of companies operating in Hungary — despite the 9% corporate tax rate — can reach the minimum tax rate of 15%, and thus it is highly likely they will not have to pay the global minimum tax. However, it is important to note that the General Secretariat indicated in its letter the need for a similar affirmative interpretation by the OECD regarding the LBT issue. In addition to the LBT, the effective tax burden will naturally include the corporate income tax and most likely the income tax of energy suppliers (the so-called Robin Hood tax).
The global minimum tax primarily affects domestic companies belonging to domestic or international company groups whose annual consolidated revenue at the group level reaches the threshold of €750 million.
The regulation places a serious administrative burden on the affected companies, as they must calculate their effective tax burden even if it eventually leads to a result above 15%, and they will also have to fulfil the related administrative obligations (data provision, declaration). It is therefore reasonable to start preparing for the global minimum tax in good time. In addition, the Hungarian government must now rethink some particularly important elements of its tax policy, and it may happen that changes become necessary, among other things, in relation to the corporate tax rebate system.