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PwC Alert - Key amendments affecting corporate tax
September, 25th 2009

Bill no. T/10676 on amendments to certain acts on sole traders (sole proprietorship) and savings incentives has been submitted for parliamentary approval. The bill introduces significant changes to several tax types. The following is a summary by PricewaterhouseCoopers of the key proposed changes concerning corporate tax and the accounting regulations in Hungary.

Corporate tax

The Corporate Tax Act will apply to sole proprietorships (egyni cg" in Hungarian).

In the statutory definition of a controlled foreign company, the definition of investment activities has been made more specific: investment activities will be defined as obtaining and holding an participation or a debt security if it is recorded as a financial asset in the financial statement."

A company will not qualify as a controlled foreign company if an entity that has been listed on a recognised stock exchange for five years (on the first day of the company's tax year) or a related party/affiliate of such an entity holds an participation of at least 25% in the company on each day of the company's tax year.

A Hungarian private individual will only qualify as a beneficial owner for the purposes of the statutory definition of a controlled foreign company if he/she holds a share of at least 10% (directly and/or indirectly) in the foreign company(previously, the minimum share was 25%).

The statutory definition of a company that owns real estate' will be made more specific compared to the ambiguous definition proposed in an earlier bill. We will provide you with detailed information on these changes in another newsflash.

From 1 January 2010, it will not be necessary for businesses to obtain the Tax Authority's approval to carry their losses forward. However, the legal principle that rights must be exercised in accordance with their intended purpose must be complied with when losses carried forward are used later, i.e. the taxpayer have to be able to prove the compliance.

The criteria for using development tax allowances will become less stringent. Also, in certain cases, a two-year extension of the deadline for meeting the criteria will be available.

Benefits, support or assets granted without consideration, assuming liability for another

person's debt without consideration from that person, or services provided without consideration, will qualify as expenses incurred for business purposes unless the benefit etc. is granted to a controlled foreign company.

Previously, it was only possible to use as a tax base decreasing item 75% of the revenue gained from dividend or share received from a controlled foreign enterprise, or received as a result of the controlled foreign enterprise's dissolution without legal successor or withdrawal of capital from the controlled foreign enterprise, if 50% of such revenues were invested in government securities. The European Commission initiated a procedure against Hungary due to this condition; as a result, the bill proposes the cancellation of this requirement.

Accounting rules

The bill confirms that books and records may be kept in EUR from as early as the business year starting on 1 January 2010, without examining the percentage-based criteria.

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