Has your company missed out on reporting its participation to the Hungarian Tax Authority? There is an opportunity to make up for it, but it is subject to certain conditions!
The tax law amendments published by the end of November have included a significant provision in relation to the so-call reported participation regime of the corporate income tax law.
In simple terms about the benefits of reported participation: if the taxpayer opts to report its newly acquired participation in a domestic or foreign legal entity (except in controlled foreing companies) within 75 days from the date of acquisiton (no option to extend the deadline) and keeps such participation in its books for at least one year, any potential capital gain upon the sales, in-kind contribution of the reported participation is tax free. Based on the current tax law amendment, the taxpayer will have the right until the deadline for the filing of its 2023 corporate income tax return to report its existing participation to the Hungarian Tax Authority, provided that the participation at the time of the reporting (and not the original acquisition date) meets the requirements of the reported participation definition of the law – the provision refers to those participations which do not qualify as reported participations prior to 31 December 2023. Consequently, in case of calendar year taxpayers, the said opportunity is available until 31 May 2024 (no option to extend the deadline).
It is important to note, however, that the new reporting provision is subject to conditions: 20% of the positive difference between the fair market value and the book value of the participation to be reported (values to be considered as at 31 December 2023) should increase the tax base of the taxpayer which will then has to be reported and tax paid until the deadline of the filing of the 2023 corporate income tax return. In order to properly substantiate the fair market value of the relevant participation, which will be considered as the acquisition cost of the participation for accounting purposes, the taxpayer must have an appraisal available until the filing of its 2023 corporate income tax return that is prepared by an independent auditor or valuation expert. Also, the taxpayer will have to keep records about the reporting of the participation.