Hungary’s National Assembly debates today a bill designed to close legal loopholes facilitating the avoidance of paying taxes by multinational enterprises. It is estimated that these schemes reduce fiscal revenues by EUR 50-70 each year at EU member states. Through the adoption of the bill, the National Assembly can prevent massive revenue shortfalls concerning the state budget of not only Hungary but almost 60 countries.

The bill to be debated today stipulates a mandatory financial report for multinational enterprise groups with an annual group turnover above EUR 750 million. Thanks to data which will be made available for the the National Tax and Customs Administration (NAV) from almost 60 countries, which include – among others – the number of employees, turnover, corporate income tax and global income allocation, tax authorities can precisely determine risks related to the reduction of the tax base and profit transfers through actual market prices.

The exchange of data is also expected to boost tax revenues at member states, as the new regulations will prevent the creation of artificial intra-group transactions with no economic value that are designed solely for minimizing the amount of tax or avoiding payment of taxes.

Besides adopting the Council Directive (EU) 2016/881, which broadens an existing agreement on the mandatory exchange of information, the bill will also help fulfil the commitments made in the OECD’s Tax Information Exchange Agreement. The Directive and the Agreement target the same objective: they both aim to do away with schemes designed to reduce the tax base and transfer profits.

Incoming data will enable NAV risk analysts to be even more efficient in filtering out relevant information and carry out adequate assessments. Controls on transfers between related enterprises and transfer prices have been successful: in the past two years, 1650 such controls were completed, of which some 85 percent revealed discrepancies and showed tax differentials of HUF 81bn (EUR 260 million). In the future, manipulators of transfer prices must face up to even more efficient controls based on up-to-date, precise data on each subsidiary of a multinational group of enterprises.

(Ministry for National Economy)