EUR 3000000000 debt issuance programme, 10 ... - Volksbank AG

The corporate tax law does not provide any additions or deductions regarding such interest income; therefore
the whole amount of the interest is subject to corporate tax. A special scheme applies in respect of inter company
financing, however, it seems that this would not be applicable in the present case, as the issuer of the
securities is a bank. The general rate is 16 percent. From 1 January 2008, a taxpayer that does not avail itself
of tax incentives provided for in the corporate tax law is taxed at a rate of 10 percent up to an amount of HUF
50 million on its positive tax base. This limited reduced rate is only applicable if requirements are met in respect
of the number of employees, the so called minimum tax base and the amount paid on pension and health
insurance contributions. Also note that there is a special scheme applicable for investments made on a stock
exchange within the European Union, whereas half the profit earned on such a market is non assessable for
corporate tax purposes. Note that the benefit is capped at half the profit before tax amount; therefore, it may
potentially decrease the effective tax rate to 8 percent. Insurance companies, financial institutions and investment
companies are excluded from this option from 2008. Thin capitalization rules must be applied in Hungary,
however, liabilities towards financial institutions should be excluded for these purposes.
Income obtained and taxed abroad is included in the taxpayer’s taxable base. However, under the domestic
double tax relief rules, the taxpayer would be entitled to a tax credit to avoid double taxation which will be
calculated as the lower of the following amounts (unilateral credit method is available) 6 .
• the amount of withholding tax paid abroad (or 90 percent of this amount if there is no double tax treaty applicable)
• the amount of tax liability which would be payable in Hungary if the income had been obtained in Hungary.
Any direct cost and any directly attributable tax adjustment should be taken into account in full when determining
the implicit tax base (for the foreign income). If there is no direct connection one should allocate the
costs (indirect tax base adjustments) pro rata to the income received from the particular country. Also from
2008 it is clearer that not all the costs should have a direct or indirect connection to the foreign sourced income,
hence these should completely be disregarded during the double tax relief.
There is no carry forward for the utilization of uncredited withholding taxes in Hungary.
From September, 2006 profits earned by a corporate taxpayer entity in Hungary is also subject to a special
solidarity levy at 4%. Such a tax is basically assessed from the accounting profits, with adjusting items not
necessarily corresponding to the ones set out in the corporate income tax law, therefore, the combined effective
rate of the two income taxes is just an approximation (i.e. 16% + 4%). The solidarity tax is non deductible
for corporate income tax purposes. Foreign taxes withheld may be credited against this solidarity levy if a
double tax treaty allows so similarly to the double tax relief rules referred above.
8.4.1.2 Non Residents
Under the Hungarian corporate income tax legislation foreign companies might be subject to Hungarian tax if
they carry out business activity via a permanent establishment in Hungary (or their place of management is
situated in Hungary, as mentioned in the pervious section). The Hungarian PE definition generally follows the
one included in the OECD model tax convention (in broad terms dependent agents, construction sites, and
branches are seen as taxable presence in Hungary).
For corporate income tax purposes non residents are generally subject to limited tax liability. This limited
liability is only extended to income derived from business activity in its permanent establishment. Therefore
interest and capital gains received by non residents are not subject to Hungarian corporate income tax unless
6 Upon application of some treaties the exemption method might be applicable in respect of double taxation avoidance,
which basically allows for the exclusion of the income taxable abroad from the taxable base, while add backs in respect of
direct and indirect costs (pro rated) would also be applicable.
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