Newsletter 2009/3 by ECOVIS HOLDING BUDAPEST

[addendum to Newsletter 2/2009]

Company owning real estate property [addendum to Newsletter 2/2009]

In our Newsletter issue 2009/1., we highlighted the definition of the company owning real estate property, and some details were mentioned about it in our issue 2009/2.

As we informed you in earlier issues, the notion of „company owning real estate property” will be introduced as of January 1, 2010.

The tax payer is considered as a company owning real estate property. If the tax payer and its depending companies owning real estate in Hungary have at least one owner being resident in a country that does not have any bilateral agreement with Hungary for avoiding double taxation or it has an agreement that allows taxing revenues in the country where property is situated and the value of these properties is at least 75% of the tax payer’s total assets with regard to the dependent companies as well and a member of any of them is a resident of a company

• which has no double taxation agreement with Hungary, or
• the existing double taxation agreement allows the taxation of exchange rate profits (including the profit out of business shares and securities)

Taking into account that the double taxation agreements concluded by Hungary rules on the taxation of exchange rate profit in a different manner. The Ministry of Finance issued an opinion concerning the definition of the company owning a real estate property according to which only those double taxation agreements can prevail, regarding the corporate income tax that allows the taxation of exchange rate profit by stipulating that these incomes come from the sale and purchase of real estates.

In the light of the above, the double taxation agreement between Hungary and, for instance, Germany or Austria cannot be considered as agreements allowing the taxation of exchange rate profits. Therefore, the Hungarian subsidiaries of companies having seats in Germany or in Austria, without regard to being a legal entity or not, cannot be considered as companies owning real estate property from a tax law point of view.

Value of the real estate should be counted based on its market value. According to the motivation of the legal act, valuation shall be carried out yearly based on the yearly business report. In the case that the company group is considered as a company owning real estate property, the members thereof shall be so considered.

As we mentioned in our earlier issue the purchase, gift or contribution in a company owning real estate property must pay company income tax with a 19% rate.

The payment obligation begins on the day of the disposal. The tax base is the difference between the disposal and acquisition value of the business share, but the justified costs of the acquisition and the maintenance can be written off.

With the introduction of the notion of company owning real estate property the sale and purchase of the business share in such a company, provided if the amount of the purchased business shares reached 75% will lead to an obligation of duty payment beyond the payment of the above company income tax.

The duty shall be paid by the purchaser of the business shares.

The base of the duty is a rate between the market value of the real estates owned by the company, a rate between the nominal value of business shares and all the business shares of the company, minus, amongst others, the market value of those business shares of the duty payer that were acquired for more than 5 years, or before January 1, 2010 or received by donation or heritage. The duty rate is 4% (2%) based on the market value of the real estate.

The tax authority can require data from the court of registration in the case where qualified influence has been reported in order to make the tax payment obligations and the fulfilment controllable concerning sale and purchase of business shares in companies owning real estate property.

By the introduction of the above dispositions and, because of having foreign shareholders, the companies owning real estate property are discriminated against the companies not having real estate properties. This violates the requirement of equal treatment and also the EU law.