A Review of Hungary’s Draft Pillar Two Law

Overview

On October 17, 2023, the Hungarian Ministry of Finance issued a draft law to implement the Pillar Two GloBE rules/EU Minimum Tax Directive. As provided in the EU Directive, the draft law includes an income inclusion rule (IIR) and an under-taxed profits rule (UTPR). It is subject to a very short consultation (until October 25, 2023).

The IIR is to apply to financial years beginning on or after December 31, 2023. The UTPR will generally apply to financial years beginning on or after December 31, 2024.

Sections 11/11A of the draft law provides that Hungary will apply a domestic minimum top-up tax (intended to be a QDMTT) for financial years beginning on or after December 31, 2023.

Under Section 2(2) of the draft law, it is to be interpreted in accordance with the provisions of the OECD model rules (where they are compatible with the draft law). Section 3(81) of the draft law states that this specifically includes not only the OECD Model Rules and the Commentary, but also the Safe Harbours and Penalty Relief Guidance, Administrative Guidelines and other documentation published by the OECD.

Unlike in a number of other jurisdictions, Section 2 of the draft law permits the GloBE Information Return (and any top-up tax payment) to be made in forints, US dollars or euros.

It also confirms that covered taxes for Hungarian purposes includes corporate income tax, local business tax (with a specific tax base for MNEs subject to the GloBE rules), income tax of energy suppliers and innovation contributions.

General