15 September, the due date of the local business tax advance payment is fast approaching – It is still possible to submit an application for the reduction!
As we draw close to the deadline for the payment of the local business tax (HIPA) advance for the autumn, it is worth revisiting what was one of the hot topics at the beginning of the year, namely the 1% cap of HIPA to be paid by SMEs for their tax year ending in 2021, as prescribed by Government Decree 639/2020, promulgated on 22 December 2020.
As explained in details in our earlier newsletter, there were a number of interpretation difficulties in connection with the Decree allowing a 1% cap on the tax rate and a 50% reduction in the amount of the tax advance for SMEs. The biggest difficulty was to determine to what extent, in the application of the Decree, taxpayers should depart from the provisions of Act XXXV of 2004 on Small and Medium-sized Enterprises and Supporting their Development (the SMEs Act), for the classification of SMEs. Section 1 of the Decree prescribes that the HIPA rate should be capped at 1% for those taxpayers that satisfy the conditions for being classified as micro, small or medium sized enterprises, as defined in the Act on SMEs, with the exception that in their case, the threshold of net revenue or balance sheet total is not EUR 50 million or EUR 43 million, but rather HUF 4 billion.
On the basis of the interpretation of the Municipality of Budapest, in the classification as an SME according to the Decree, all conditions prescribed in the SMEs Act must be satisfied, with the exception of the HUF 4 billion threshold, which – by its nature – excludes the applicability of the “two-year rule” of the SMEs Act. This means that, for the purposes of classification as an SME, the data of the last consolidated financial statement, or in the absence of a consolidated financial statement, the consolidated data of the last financial statements of the enterprise and its partner and affiliated enterprises must be taken into consideration.
The Decree provided that the 50% reduction of the HIPA advance is subject to a declaration for tax advance reduction submitted on form 21NYHIPA by 25 February 2021; however, the uncertainties of the legal interpretation were only cleared up after the above deadline. The question arises, therefore: what can those businesses do that on 25 February 2021, the deadline for submitting their declarations, still classified themselves as large companies, and therefore have not submitted a declaration, but on the basis of the legal interpretations that have since surfaced actually fulfil the criteria for classification as SMEs?
These businesses may, until the date on which the HIPA advance is due (according to the main rule, 16 March and 15 September) submit an application for the concerning local authorities for the reduction of the tax advance with a view to the fact that the tax advance is to be paid on the basis of the data of the previous period, however, according to their calculations, their tax liability will not reach the amount of the tax advance payable on the basis of the preceding period. It is important that the application for the reduction must contain the available information and business plans relevant in connection with the calculation of the local business tax, and then derive the amount of the expected tax liability on the basis of that information.
In order to avoid the rejection of the application or a default penalty imposed for the unlawful reduction of the tax advance, due care should be exercised in the course of the preparation and filing of the application, and therefore we recommend that you use the support of an experienced tax expert.
We hope that you found the above information useful. If you have any further questions in connection with this topic, we are at your disposal.
