Which tax liabilities are affected by the changes in legislation?
Pursuant to the decree, taxpayers may file annual (due between 22 April and 30 September 2020) and extraordinary:
- corporate tax (TAO),
- small business tax (KIVA),
- income tax of energy suppliers (Robin Hood tax),
- local business tax (HIPA),and
- innovation contribution (Innov.)
tax assessments, return and payment, as well as tax advance assessment and payment for the next one-year period by 30 September 2020.
The decree similarly extends the deadlines for the preparation, publication, deposit, publication and disclosure of accounting reports (e.g., annual reports, simplified annual reports, consolidated annual reports, simplified reports) to 30 September 2020, provided that the deadlines are between the entry into force of the Government Decree, i.e., 22 April 2020 and 30 September 2020. The deadline for additional accounting obligations based on the financial statements must also be calculated from that date.
When is it not worth opting for the moratorium on taxation and reporting?
1. Submission of a deferred return entails deferred refund!
The common feature of the corporate tax, local business tax, small business tax, innovation contribution, Robin Hood tax types is that each of them is based on the data of the report for the same financial year as the fiscal year, and the tax calculation is prepared together with the report. For these types of taxes, a tax advance must be paid during the year in the amount and frequency calculated on the basis of the tax liabilities of the previous years, and the taxpayer also declares the difference between the annual tax liability and the tax advances paid. Depending on whether the difference is positive or negative, this is either paid additionally or is refunded. In connection with the types of taxes covered by the decree, the legal regulations regulate the deadlines for tax return and tax payment separately:
- The return for these taxes must be submitted and paid by the last day of the fifth month following the fiscal year,
- The taxpayer shall pay the tax, the difference between the tax advance paid and the tax assessed by the last day of the fifth month of the year following the tax year, or may claim it back from that date.
In practice, this means that even if a business organisation submits its return before the deadline, its tax liability or right to tax refund is still linked to the last day of the fifth month following the tax year. ‘The decree does not amend the deadline for returns and payments specified for the last day of the fifth month following the dogmatically stated tax year to 30 September 2020, but allows taxpayers to comply with these obligations by 30 September 2020.
- The Government Decree does not contain a provision that those who fulfil their tax return obligation after the deadline according to RTA (Rules of Taxation Act),but by 30 September 2020, would have to pay or reclaim the annual tax difference at the same time as submitting the declaration! If the legislator has such an intention, then it is clearly expressed in the legal regulation, as in the case of self-audit.
- The decree only contains a provision on the obligation to pay. If the tax advance paid during the tax year was higher than the actual tax liability, the taxpayer is still entitled to reclaim this negative difference from the due date according to the general rule, i.e., from the last day of the fifth month following the tax year.
Obviously, until taxpayers do not file their annual tax return, they will not be able to claim back the amount of the difference either, so it is important for those who potentially exclaim tax to file their tax return by the original (as a general rule, 31 May 2020) due date. If a company needs the amount of money that can be reclaimed on the basis of the annual tax return for liquidity reasons, it cannot delay the submission of the return or the preparation of the report either!
With regard to local business tax returns with refund claims, it is important to be aware that during the crisis caused by the coronavirus, not only business organisations are struggling with revenue problems and drastic cost increases, but also local governments. In the case of HIPA returns with a large amount of refund, taxpayers have a good chance of expecting a tax audit, in which the municipal tax authorities can also involve an external specialist, even on a success fee basis! In order to reduce the risks, it is definitely recommended to involve an experienced expert in the preparation or review of local business tax returns with a significant amount of refund claim.
2. In order to validate tax offers, it is better not to postpone the return!
There is a thought-provoking legal gap relating to the 7.5% credit for the amount offered from the corporate tax advance to film and visual team sports organisations. Although the decree states that it is also possible to make an offer from the corporate tax advance required under the transitional rules, however, in the absence of a transitional provision, the rules of the Corporate Tax Act shall apply to the accounting of tax credits for offers made in the previous tax year. The taxpayer is entitled to a tax credit, which NAV transfers to the taxpayer's corporate tax account on the first day of the 2nd month following the due date of the corporate tax return (as a general rule, 1 July). Since the date of 30 September 2020 is not a new due date for tax returns, the credit after the offers will not be postponed to 1 November 2020!
The amount of the credit does not only depend on the amount offered from the tax advance, but its upper limit is 7.5 percent of 80 percent of the payable corporate tax, so if a business organisation submits a corporate tax return using the moratorium only after the credit deadline, NAV will not be able to determine the amount of the tax credit within the deadline set by the Corporate Tax Act. As there is no provision in the Corporate Tax Act for such a case, either a quick amendment to the legislation would be required or the company deferring the return will not receive the credit for offers made from its 2019 corporate tax advance until after its return has been processed. Therefore, in the case of a significant amount of tax credit, it is recommended to prepare and submit the corporate tax return as soon as possible, even with the assistance of an expert.
It is not worthwhile for business organisations making a tax offer to opt for the moratorium offered on corporate tax returns or reporting.
3. Dividend - can only be paid on the basis of an approved report
There is a large number of not only Hungarian subsidiaries of the international groups, but also other business organisations, which were able to make a significant profit in their 2019 financial year. In the crisis caused by the coronavirus, and in the context of the recession ahead, it may be important for shareholders to withdraw their business profits in the form of dividends and reallocate them to other investments.
Considering that a decision on the payment of dividends can be taken at the same time as the adoption of the report, the preparation of the report and thus the calculation of annual taxes cannot be postponed until 30 September 2020, or even until the last day of the fifth month following the business year originally specified for business organisations where shareholders wish to receive dividends from the previous year's profits!
4. Deadlines dictated by groups of companies, foreign parent companies
In the case of business organisations included in the consolidation, where a foreign parent company which cannot use a similar extension to the Hungarian deadline prepares the consolidated report of the group, they are also unable to take advantage of the reporting deadline of 30 September 2020. In their case, their report must be prepared and sent to the parent company within the originally planned deadline.
5. A loan or application evaluation may also depend on the data of the report
In the coronavirus crisis, many business organisations may need to take a loan to survive. In addition to a number of documents and certificates, financial institutions also examine the data of the report published by business organisations in the course of a credit assessment. For business organisations that have made significant progress in their 2019 financial year compared to their previous financial years - because, for example, their revenue, profits, own funds, etc. have increased - it is important that they deposit and publish their report as soon as possible to be evaluated more favourably in their loan application.
For similar reasons, if a business organisation wish to take part in a tender where as a precondition certain criteria must be met on the basis of the data of their annual report published for the last financial year and they do not fulfil the preconditions based on their 2018 financial year but do so based on their 2019 financial year, it is also essential to deposit and publish the report within a short period of time.
In addition, it is not advisable to postpone the publication of the report and the submission of annual returns if the company is forced to stop or reduce its economic activity due to the epidemic and therefore it is foreseeable that resuming the activity in late summer or early autumn will impose a significant administrative burden on the managers concerned as well as the financial administration. In this case, too, it is worth preparing both the report and the annual tax return by the beginning of the summer at the latest.
Transitional rules for local business tax, corporate tax, small business tax, innovation contribution advances
As for these types of taxes the amount of the tax advance for the next one year must be determined from the annual tax liability declared for the previous period, it was necessary to introduce transitional rules!
- If a taxpayer fails to file a local business tax and tax advance return by the 15 September 2020 (by default) and opts for the postponement, they must pay the amount of the previously declared, former local business tax advance when the first local business tax advance is due.
- In the case of corporate tax, small business tax, Robin Hood tax, Innovation contribution, for tax advances and contribution advances due between 22 April and 30 September 2020, for which a return may be submitted by 30 September, the taxpayer shall assess the tax and contribution advance obligations based on the advance obligation and the same schedule established in the last available return and must pay them by the deadline applicable to it.
- The decree emphasizes that it is also possible to offer a tax advance to film productions and spectator team sports organizations from the corporate tax advance thus established.
- The law ensures that the tax or contribution advance thus assessed may be reduced at the taxpayer's request, before it is due, if according to the taxpayer’s calculation the tax or contribution for the fiscal year starting in 2020 is lower than the amount of the tax or contribution advance.