Tax and Accountancy Market Talk: Sharpen Your Digital Pencils

BBJ: What are the biggest tax changes for 2024?

Károly Radnai: 2024 will once again significantly transform the Hungarian tax system. The eVAT system started at the beginning of the year, the detailed domestic rules of the global minimum tax came into force, the introduction of the compulsory recollection system further complicates the regulation of domestic waste management, and importers already have to provide data under CBam (carbon border adjustment mechanism). It is also important that, as of Jan. 1, Hungary does not have a valid double taxation treaty with the United States.

Péter Hajnal: Several small changes affect the state budget, but I would mention introducing the global minimum tax and the tax amnesty after reported shares.

András Szalai: I would mention two major changes: 1) In line with the EU GloBE Directive 2022/2523, Hungary implemented the Global Minimum Tax regime. The interpretation and application of the new law will be challenging both for the companies involved and for professionals. 2) As a next step towards digitalization, eVAT was implemented from the start of this year as an optional solution besides traditional manual tax returns.

Helga Kiss: One of the most significant changes affects fiduciary trusts’ personal income tax liability. Instead of the so-called input taxation in force until 2023, the tax changes introduce output taxation. In practice, from 2024, the taxation point shifts from the revaluation of assets to the current market value when the private individual beneficiary receives revenue. For the PIT liability calculation, the dividend rules are applied if the asset transfer is carried out within five years and the asset value has increased due to the revaluation. The trustor must keep records about the increase in the asset value.

Companies will have the opportunity for a tax amnesty in 2024 by retrospectively declaring participation in acquisitions previously not reported to the Hungarian National Tax and Customs Administration (NAV). This will allow corporate income taxpayers who have previously failed to declare their participation in other companies to be exempt from paying Corporate Income Tax. The deadline for the retrospective declaration is the submission period for the 2023 CIT return. The biggest beneficiaries of this could be those companies expecting significant market value growth in their subsidiary. There are several conditions to consider; for example, the market value of the participation has to be supported by an independent expert company.

Gyöngyi Ferencz: The global minimum tax will open a new chapter in the taxation of multinational corporations, especially in Hungary, where the new rules could make a particularly huge difference due to the currently low corporate tax rate. Further important changes are the eVAT system that will modernize and digitalize the VAT return process, the introduction of the e-receipt and e-cash register system, and the termination of the U.S.-Hungary Double Tax Treaty. It is also worth preparing to face increased transfer pricing external audits in 2024.

Zoltán Lambert: The introduction of the global minimum tax is a milestone for those subject to it, and they should have started to think about the effects in Hungary by modeling and calculating future tax liabilities. The start of the eVAT return is also a significant change, but it will not make accountants redundant now.

Péter Hajnal

BBJ: What are the biggest accountancy changes for 2024?

Judit Jancsa-Pék: One of the most challenging tasks for companies to adjust is the new GLoBE system. To ensure a better position for GloBE-affected companies, deferred taxation has been introduced into the Hungarian accounting standards as an option. The issue affects 2023 as well, from tax and accounting points of view, as this year’s decisions will affect the taxation of the period starting from 2024.

P H: We do not see substantial regulation changes for 2024. NAV is better involved in the procedures and tries to support accountancy, improve transparency and set up checkpoints.

A Sz: By far, the biggest change of recent years is implementing the deferred tax concept. The aim is to mitigate the disadvantageous effect of Hungarian tax relief on GloBE calculation; the application is optional.

Gy F: One of the most significant accountancy changes for 2024 is the recognition of deferred tax in the annual accounts, regardless of whether a company prepares IFRS reports or not. This option will likely be used primarily by Hungarian subsidiaries of foreign companies with reporting obligations under other accounting standards (IFRS, GAAP, etc.) It will often allow easier convergence between the Hungarian and international accounting reporting systems.

The other significant new element affecting several larger companies is the introduction of ESG reporting obligations in the financial statements from the 2024 fiscal year. Businesses falling within the scope of the CSRD Directive are required to prepare a sustainability report. Preparation in good time will be advisable, as the reporting tasks are pretty time-consuming, and the report will be subject to an auditor review.

Z L: The new deferred tax accounting rules, which may affect the global minimum tax, need to be reviewed in more detail. Decision-makers should also consider that these rules can be applied for 2023 as well.

András Szalai

BBJ: What tax changes would you most like to see introduced, and is there any likelihood of that happening?

KR: Companies and investors identify several risks associated with the Hungarian tax system. These include sector-specific taxation, special taxes and retroactive legislative practices. Another complicating factor is that one tax is regulated by several bodies of legislation simultaneously, often at different levels of the hierarchy. Changing how legislators think in this area would be a significant step forward in simplifying the tax system.

J J-P: It would be nice if not only major team sports could be supported by corporate income tax but also foundations supporting health institutions and environmental protection. This decision not only depends on the Hungarian decision-makers but would also require EU negotiations, meaning that even if there was an intention to do so, and the budget situation allowed it, it would take longer to get through.

P H: Canceling or reducing special taxes would be a popular decision.

A Sz: There have been improvements in digitalization and paperless administration; however, certain areas seem to be behind this trend. Social security administration has examples where a paper-based format is still used.

Gy F: An essential step in taxation would be acting against over-regulation and unnecessary administration. VGD Hungary will share its professional suggestions through chamber committees.

Z L: We continuously emphasize that wage and investment costs should be considered when calculating the local business tax. However, we do not see that this will change in the near future or at all.

Helga Kiss

BBJ: What accountancy changes would you most like to see introduced, and is there any likelihood of that happening?

P H: Administrative and bureaucratic burdens should be further decreased. There are promising initiatives to move forward, but the actions come slowly.

A Sz: We would like a more up-to-date accounting law that follows business and technology trends. For example, the need to handle cryptocurrency transactions arises more often, but our law still offers no guidance.

Anita Perge: We advocate for tax and accountancy reforms that promote competitiveness, simplify compliance, and stimulate investment. Regarding accountancy reforms, a closer alignment with IFRS is desirable. This would facilitate global business operations and financial reporting.

Gyöngyi Ferencz

BBJ: What is coming down the line in the next few years that businesses should prepare for now?

KR: The eVAT system allows companies to submit their VAT return faster, more securely and accurately. This development is especially important because, in the coming years, all company tax returns, such as corporate or local business tax, may or must be submitted electronically. The system is based on the SAF-T standard developed by the OECD, which describes the data provision in XML data format, designed to specify and transfer digitalized accounting data related to taxation.

J J-P: Many things are changing in international taxation. For example, VIDA is coming into VAT as a European-based digital solution that will raise Digital Regulatory Reporting, a transaction-based approach. It will enable all multinationals in EU member states to implement regulatory reporting rules consistently. DRR could impose new challenges for multinational enterprises and hand new weapons to tax authorities. In summary, EU-level data provision will be developed, which will partly help reduce the companies’ administrative burdens and, on the other hand, whiten the economy.

The other clear highlights of international taxation are provided by another EU Commission package that consists of three legislative proposals: the framework for income taxation (“Befit”) directive, a proposal establishing a head office tax system for SMEs (“HOT”), and a transfer pricing directive (TPD). While they bring different challenges, and their adoption is still unclear (both timing-wise and in final format), these proposals will be on the agenda of 2024 and should be monitored closely.

P H: The rise of AI is increasingly likely in accounting; however, using the new technologies assumes sweeping changes in the procedures and company managers’ mentality. There are many automations to increase efficiency and avoid manual work, but AI could also bring new dimensions to our profession.

A Sz: In line with the ViDA reform of the EU, the mandatory e-invoicing of intra-community B2B transactions is coming in the next few years. Although it may not seem difficult to issue e-invoices, it may be challenging to comply with the legal requirements for storage.

H K: The eVAT system introduced this year will revolutionize VAT reporting with a data-centric approach. It aims to enhance VAT submission accuracy and efficiency by leveraging real-time invoice reports, cash registers, and customs declarations, reducing administrative burdens for businesses and NAV. The potential to reduce tax audits is significant.

Allowing businesses to correct errors preemptively lowers the likelihood of audits due to inaccuracies. Adopting eVAT promises streamlined reporting, fewer audits, and standardized VAT analytics submission, enhancing consistency and reducing NAV’s administrative load. Businesses should focus on the quality of their real-time invoice data submissions, partner master data, tax codes, and reporting processes. As NAV’s inspection and data analysis methods evolve, the importance of data quality will increase.

A P: Businesses should prepare for changes and trends such as regulatory shifts, technological innovations, AI, and evolving consumer behaviors. NAV’s ongoing initiatives, such as expanding online invoice systems to include eVAT and e-receipts, are pivotal. These steps towards digital transformation underscore the need for businesses to adapt swiftly to technological advancements. Also, the expanding influence of AI across our industry and client workflows promises to be transformative, necessitating a proactive and prepared approach that prioritizes data protection.

Z L: We believe major changes will occur from compliance and advisory perspectives. From a compliance point of view, the reporting process will be more complex, based on the EU rules (TP reports, GMT reporting, DAC7 reporting, etc.). Data reporting may also substitute the traditional tax reporting methods in which taxpayers submit tax returns. To do so, the ability to handle mass data will be crucial. This will happen with AI but controlled by human experts. On the other hand, tax advisors will have a vital role in interpreting and translating the fast-evolving global tax changes to in-house tax experts.

Zoltán Lambert

BBJ: Are you concerned about finding enough graduates of the right caliber for your business?

P H: This has been a continuous concern for years, not only in our business sector.

There are an increasing number of investments and international companies in Hungary, but on the other hand, the number of graduates is decreasing. Due to this competition, your company must be very attractive (professionally, environmentally, and humanly) to those you want to hire or retain.

A Sz: No, we are hiring fresh graduates and experienced colleagues. Despite the recent economic slowdown, the competition in the labor market remains intense, so we need to keep focus on improving our career proposition to maintain success in employee recruitment and retention.

A P: Concerns persist within the industry about finding graduates with the right caliber of skills and expertise. This situation underscores the need for a strategic approach in hiring, focusing on identifying those with the right attitude and skill set and who align with our organizational culture and values. The other pillar of this strategy ensures our employees’ ongoing development and education. Our robust talent development program fosters a supportive environment across the company. This is one way to mitigate any talent challenges.

Judit Jancsa-Pék

Tax and Accountancy Market Talk Panel 2024

• Károly Radnai, managing partner of Andersen Hungary.

• Judit Jancsa-Pék, partner and senior advisor of LeitnerLeitner.

• Péter Hajnal, partner and managing director of Moore Hungary.

• András Szalai, managing partner of Process Solutions.

• Helga Kiss, director of tax services at RSM Hungary.

• Anita Perge, head of accounting and tax for Hungary at TMF Group.

• Gyöngyi Ferencz, audit partner, at VGD Hungary.

• Zoltán Lambert, managing partner of WTS Klient Business Advisory Ltd.

Anita Perge

This article was first published in the Budapest Business Journal print issue of March 8, 2024.