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68 • Fifty Shades of Tax Dodging Ownership transparency The government’s position on the public’s access to beneficial ownership information is not known, and likewise its plans for the implementation of the EU’s new anti-money laundering directive is not clear yet. In 2015, the OECD Global Forum on Transparency and Exchange of Information for Tax Purposes assessed Hungary for its corporate and financial transparency, and rated it “largely compliant”, noting several shortcomings. 644 Among these, the OECD highlights that while ownership information on domestic companies is stored, there is “no requirement for foreign companies having their place of management in Hungary to keep ownership and identity information in Hungary.” 645 Furthermore, ownership information on partners of foreign partnerships in Hungary is not kept either. Given the fact that Hungary is a significant routing destination of FDI, these are serious drawbacks. Hungary introduced legislation in March 2014, which for the first time allowed trust structures to be established. 646 While the legislation mandates authorities to keep information on the identity of the trust’s settlors, the trustee and beneficiaries, the OECD review recommends that, because of a lack of prior experience with this practice in Hungary, the government should closely monitor it. 647 As the EU’s new anti-money laundering directive exempts trusts from transparency requirements applied to companies, this new trust sector may attract illicit financial flows, if no stringent transparency and monitoring measures are introduced by the government. It is worth noting that, in some other respects, Hungary is ahead in corporate transparency. According to the 2011 Act on National Assets, any company seeking grants has to be able to present a clear ownership structure, with similar requirements for public procurement. 648 Companies owned through non-EU, non-EEC and non-OECD countries that Hungary does not have a tax treaty with are automatically regarded as non-transparent and are therefore barred from public procurement contracts and grants. 649 EU solutions The large number of recently introduced sector-specific taxes have come under scrutiny by the European Commission. In October 2014, the Commission criticised the government’s plan to introduce a new tax on internet data transfers, while domestically, large protests and criticism from a number of professional organisations followed the announcement of the plan. 650 In March 2015, the European Commission opened an indepth investigation into the country’s Advertisement Tax Act introduced in 2014. In July 2015 it initiated two separate indepth investigations into the tax on large tobacco companies introduced in December 2014 with the Act XCIV of 2014 on the health contribution of tobacco industry businesses, and into the Hungarian Food Chain Act, amended in 2014. 651 The Commission challenged the tobacco and advertisement tax on the basis that they could provide state aid to smaller operators, as the taxes apply progressive bands according to turnover rather than profits, and issued injunctions in both cases, prohibiting the use of progressive rates in these taxes until the Commission’s investigation is concluded. 652 Some large multinational companies that were affected by the legislation criticised the taxes, claiming that they are “openly and clearly” targeting foreign companies. 653 In response to such complaints, the Minister of the Prime Minister’s Office said, “You can go complain to the EU, but then you’ll just pay more.” 654 Needless to say, the many investigations from the Commission and the government’s resolve to set its own tax policies have resulted in a tense relationship between Hungary and the EU when it comes to taxation. While relevant Hungarian ministries have declined to elaborate on the government’s position on the Common Consolidated Corporate Tax Base or CCCTB (EU directive in Hungarian Közös konszolidált társaságiadó-alap KKTA 655 ), comments from the Prime Minister suggest that the Hungarian government does not support it. On 25 March 2011, concerning the CCCTB and the Euro Plus Pact of March 2011, the still sitting Prime Minister Viktor Orbán said, “Hungary will not join the pact that the euro zone’s heads of state and governments had agreed upon”. This was because, as Orbán explained, it would eventually lead to the harmonisation of the corporate tax base. He also said that the acceptance of a harmonised corporate tax base across Europe would mean a significant blow to economic growth in Hungary, and the country would lose the independence of its tax policy. 656 It is not known whether the government would be open to the new revised version of the CCCTB that the Commission has announced in 2015.
Fifty Shades of Tax Dodging • 69 Global solutions Hungary’s position on whether or not to establish an intergovernmental body on taxation remains unclear. At the Financing for Development conference in June 2015 the government sent a delegation consisting of the Ministry of Foreign Affairs deputy state secretary responsible for international cooperation and the head of the Department for Development Cooperation and Humanitarian Aid. Officials from the Hungarian Ministry for National Economy did not travel to Addis Ababa. However, the ministry organised a Central European regional conference on development finance and private sector development for the week after the conference. Representatives from ministries of foreign affairs, ministries of finance, and development agencies from Austria, the Czech Republic, Poland, Slovakia and Slovenia attended, and participants discussed possible directions of post-2015 development finance and development cooperation for the countries of Central Europe. 657 Conclusion Hungary still offers very attractive corporate income tax regimes in the EU, despite the sector-specific taxes introduced from 2010 onwards, which target mostly foreign-owned large corporations. 658 Originally introduced as extraordinary measures, sector-specific taxes have generated over 5 per cent of the central budget revenue in 2014, 659 making them an attractive tool for the government to balance its budget. This past year has seen the Hungarian government come under scrutiny by the EU a number of times for the alleged discriminative nature of some of the sector-specific taxes. Hungary’s system of SPEs and its favourable holding regime make it an attractive destination for tax planning purposes, which is also reflected in the high rate of capital in transit in the country. On a positive note, there has been some improvement in corporate transparency reporting, and recently adopted legislation will introduce mandatory IFSB reporting form 2016 for domestic companies.
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Contents Glossary 4 Executive summa
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