The world of international taxation is undergoing significant change with the introduction of the global minimum tax (GloBE) framework. This new system aims to fairly distribute tax rights among countries where these corporations operate, ensuring that they contribute to the tax base of each country.
In the new GloBE system, early preparation for fulfilling obligations is extremely important, as is the involvement of experts with a deep understanding of local special rules. Multinational corporations should take the opportunity to classify and organize their tax data now to avoid more significant administrative burdens later. Proper data management and classification will ensure that subsidiaries comply with GloBE requirements and prevent unexpected issues.
Given the complexity of navigating between local and international tax regimes, it is highly advisable to involve local tax experts. Hungarian advisors understand the nuances of the GloBE framework in the national context and can help ensure subsidiaries qualify properly and provide accurate information to their HQs.
Based on our experience in recent months, many MNC HQs have begun collecting data from their Hungarian subsidiaries to comply with GloBE regulations. As the deadline is quickly approaching (the first year of reporting will be FY 2024), it is strongly advisable to do the preparatory work, contact advisors and make test calculations with the year-end data of 2023.
In addition, according to our current knowledge, this year – i.e. by 31 December 2024 – taxpayers will have to notify the tax authorities that they are subject to the regulation, although the required form for this is not yet available.
What the Heck is GloBE?
GloBE is a solution developed by the OECD to overcome aggressive tax planning. It introduces a 15% global minimum tax that MNCs must pay on their profits, regardless of location. This system aims to curb tax avoidance practices and encourage companies to pay taxes where the actual economic activities take place.
The framework primarily applies to large multinationals with global revenues exceeding EUR 750 million (data from the previous four years must also be examined). Under this regime, companies must demonstrate that their subsidiaries in each country are paying at least the minimum tax. If not, the difference should be paid. This means that “smaller” Hungarian subsidiaries of large enterprises could also fall under the obligation.
In Hungary, the difference will be mainly collected as Qualified Domestic Minimum Top-Up Tax (QDMTT), which means that the local group members must pay the tax here.
What Taxes are Covered by GloBE?
GloBE primarily targets corporate income taxes, ensuring that companies pay taxes on their profits in every country where they operate. In Hungary, this means that corporate income tax, local business tax, the innovation contribution and income tax of energy suppliers are considered as covered (acknowledged) taxes in the calculation. At this stage, neither retail tax nor other sector-specific taxes are included.
Given the differences in tax regulations across countries, it is essential to review the specific rules and any potential exemptions, especially in the early years of implementation. Moreover, every company and fiscal year can be different. We have already met with an example where the effective tax was only 12%; in another case, it was 27%. Those companies whose total tax burden already reaches 15% but must pay special taxes in Hungary that will be considered on top of that will be in the most unfortunate situation; their tax burden could be unfairly high.
Hence, it is crucial for multinational companies and their Hungarian subsidiaries to stay updated on the changes and ensure that their tax practices remain compliant with the latest international standards.
LeitnerLeitner and LeitnerLaw have a long tradition of offering their clients high-quality full-scope (tax, accounting, payroll audit and legal) consulting in Central Europe. Creating integrated and multi-disciplinary one-stop solutions is the main element of our client-focused approach when approaching the needs of private clients, SMEs and corporate groups on general and specific questions.
