The Act on the Rules of Taxation (Act CL of 2017) is a significant piece of legislation in Hungary that came into effect in 2018, introducing several changes to the country’s tax administration system. This act, along with the Act on Tax Administration Procedure (Act CLI of 2017), was part of a broader effort to reform and streamline Hungary’s tax regulations.

Key Features and Changes

Restructuring of Tax Laws:
The new Act on the Rules of Taxation (ART) separated general procedural rules from specific tax obligations. While the Act on Tax Administration Procedure covers general procedural rules, the ART focuses on detailed rules for specific tax obligations.

Simplified Regulation:

• Certain tax administration rules were moved from acts to lower-level decrees.
• Some provisions were transferred to individual substantive legal regulations, such as the Act on Personal Income Tax.

Penalties and Fees:

• The maximum tax penalty for concealing income or falsifying accounting documents remains at 200%.
• The act maintains penalty caps of 200,000 forints for natural persons and 500,000 forints for non-natural persons for general non-compliance.
• A new “tax administration procedural penalty” was introduced to sanction taxpayer non-compliance.

Customer-Friendly Approach:

• The act introduced a more lenient approach for certain non-compliances, with warnings preceding penalties in some cases.
• The National Tax and Customs Administration (NAV) would not impose late payment fees under 5,000 forints.

Changes in Tax Administration:

• Tax authority supervision procedures were eliminated.
• The sanction of tax number suspension was removed.

Impact on Taxpayers

The new Act on the Rules of Taxation aimed to create a more favorable environment for taxpayers while maintaining the integrity of the tax system. It introduced concepts like “reliable” and “risky” taxpayers, although the procedural penalties apply equally to all categories of taxpayers.

Broader Context

This act was part of a larger tax reform package in Hungary, which included other significant changes such as the reduction of the corporate tax rate. The overall goal was to simplify the tax system, improve compliance, and create a more business-friendly environment while ensuring proper collection of tax revenues.

CbC Reporting Implementation

The Act on the Rules of Taxation (Act CL of 2017) in Hungary is closely related to the implementation of Country-by-Country (CbC) reporting requirements, which are part of the OECD’s Base Erosion and Profit Shifting (BEPS) initiative. While the Act itself is not specifically focused on CbC reporting, it provides the legislative framework for various tax-related obligations, including CbC reporting.

While the CbC reporting obligation primarily affects large MNEs, it has indirect implications for Hungarian companies that are part of such groups:

1. Hungarian entities may have intercompany duties to provide necessary financial information to the reporting company.
2. The Hungarian Tax Authority can use CbC reports for risk, economic, and statistical analysis, but not directly for tax base findings associated with transfer pricing.

This implementation of CbC reporting within the framework of the Act on the Rules of Taxation demonstrates Hungary’s commitment to international tax transparency and cooperation in line with OECD standards and EU directives.