The Hungarian Gazette of Tuesday, 14 April 2020 published a decree on
the surtax of retail industry. The surtax may result in a significant
overtaxation due to the fact that the
basis of the advance payment liability is the turnover data of the previous
business year based on the decree. Practically, this is the update of
the former Hungarian act of 2010 on sector-specific taxes as both the object
and the tax rate are the same as in the old act.
Before going into details, it is worth taking a look at the expectations
regarding surtaxes and the probability of their realisation. Namely, besides
the overtaxation risk the realisation of the expectations is also doubtful as
the surtax of the retail traders only resulted in a revenue of the budget of
only HUF 33 billion, while this time a tax revenue of HUF 36 billion is
projected by the government. This seems to be high even if we take into account
that the turnover of the retail sector has significantly grown in the past 10
years, because most of the operators in the industry has suspended their
activities or operates on a minimum level in the current situation, such as the
trade of clothing, footwear, electrical appliances, games and toys, motor
vehicles and fuel. In addition to the fact that companies in the commercial
sector are struck hard by the crisis, they have not even received any specific
subsidy so far which makes the recovery of these tax amounts even more
difficult. The affected undertakings will expectedly prepare their advance
payment tax returns based on their previous year’s data, but file a request for
tax relief or for the decrease of their tax advance payment liabilities at the
same time.
Based on the current legislation, companies operating in the retail
sector are subject to the retailer surtax, but the tax liability is independent
from the method of sale, i.e. it also applies to the revenue from e-commerce realised
by domestic companies and foreign traders operating in Hungary.
Retail activity is defined by the law, according to
which the following activities fall under the scope of the surtax:
- Sale of motor vehicles, including the sale of cars, light vehicles and other vehicles (TEÁOR’08 45.1), but not including the wholesale of motor vehicles and trailers
- Retail trade of motor vehicle parts and accessories (TEÁOR’08 45.32)
- Sale, maintenance and repair of motorcycles and related parts and accessories (TEÁOR’08 45.40), excluding the repair and wholesale of motorcycles
- Retail trade, except of motor vehicles and motorcycles (TEÁOR’08 47.1-47.9, such as Retail sale of non-specialized stores: food, other; Food, beverages, tobaccos: food, beverages, tobaccos, fruit, vegetables, meat and meat products, fish, bread and flour confectionary, beverages, other; Automotive fuel; Information and communication equipment: computers, telecommunications equipment, audio and video equipment; Other household equipment: textiles, hardware, carpets, furniture, electrical household appliances; Cultural and recreation goods: books, newspapers, music, sporting equipment, games and toys; Other goods: clothing, footwear, leather goods, medical goods, cosmetics, flowers, pet food, watches and jewellery, second-hand goods; Retail sale via stalls and markets; Retail sale via mail order houses or via Internet, other retail sale not in stores), in which the customer may be a private person as well.
The tax mainly affects large enterprises and it has a progressive tax rate
just as in 2010. The tax liability shall be determined based on the net
turnover of the last business year closed by financial statements (2018 or
2019); the bands and rates equal to the ones of the legislation in 2010:
- HUF 0 up to a turnover of HUF 500 million;
- 0.1% between a turnover of HUF 500 million and 30 billion;
- 0.4% between a turnover of HUF 30 billion and 100 billion;
- 2.5% over a turnover of HUF 100 billion.
The application of progressive tax rates to special taxes is supported
by the judgments of the European Court of Justice as of 3 March 2020. These
judgments of the ECJ concluded that progressive rates of surtaxes do not create
any discrimination against companies owned by foreign persons and do not harm
the freedom of establishment either.
Net turnover of related parties shall be added up and then divided in
proportion of their turnover. According to the legislation, monthly advance
payment liability shall be paid, the due date of the first advance payment is
31 May 2020. Further, the tax return on the advance payments of the whole year
shall also be submitted until this deadline.
Nevertheless, it is possible to
reduce the advance payment liability due to a special provision,
provided that the turnover of the given month is at least by 40% lower than the
same period of the previous year; however,
such relief shall be claimed at the Tax authority. Therefore, this
legislation also makes prompt tax planning inevitable in order to take steps
and claim tax reliefs if necessary. The decree enters into force on 1 May 2020.
