Tax Alert

Last week, the government announced a further modification to the Decree on Extra Profit Surtaxes, which in most of its provisions took effect on July 18, 2023. It also published the emergency rules affecting those operators of installations receiving a significant free allocation of CO2 emission rights, effective July 20, 2023. Please find our summary of the key points below.

Extra profit surtax

Surtax on producers of petroleum products

• The tax rate will decrease to 1% for 2024, down from the previous rate of 2.8% in 2023.
• Taxpayers must calculate and file the tax for FY2024 by the last day of the fifth month of the fiscal year. The tax should be paid in three installments, in the sixth, the ninth and the twelfth month of 2024, respectively.

Pharmaceutical producers’ extra profit tax

• In 2024, taxpayers will be able to reduce their tax liability by the following means: on one hand with the acquisition cost of tangible assets acquired or produced in Hungary, and on the other hand with the direct cost of basic research, applied research and experimental development carried out in the tax year within their own scope of activity.
• The reduction in tax is capped at 50% of the total tax payable, excluding the decreasing item itself.

Pharmaceutical surtax

• Taxpayers liable to pay a 40% tax rate in 2023 and 2024 can decrease their tax liability by the amount of the acquisition cost of tangible assets acquired or produced in Hungary, and furthermore by the direct costs of basic research, applied research and experimental development in the healthcare sector carried out within their scope of activity, as shown in the financial statements (including the consolidated financial statements of consolidated companies) for the tax year preceding the relevant tax year. However, this decrease can only be applied by one taxpayer for the same amount of research and development expenditure of the undertakings included in the consolidation.
• The tax decrease is capped at 50% of the 40% rate calculated without deductions. A further condition is that the payment liability cannot be lower than the liability that would have accrued if the rate had been 20%.

Mining tax:

• The Government Decree on Extra Profit Surtax previously provided for several rates on the quantities extracted in connection with the mining tax. Following the current amendment, as of September 1, 2023, the tax rates will be based on the methods of calculating the specific value of mineral raw materials and geothermal energy, as defined in the respective Government Decree 54/2008.
• The amended regulation applies to mining operators extracting hydrocarbons only if they both meet the extraction volume they have committed to in their official contract for the same category of fields for the years 2023 and 2024 and if they exceed the extraction volume they have committed to in 2022. If the mining operator fails to comply with the extraction volume contractually agreed, it is required to pay, in addition to the mining tax paid in the year in question, the difference between the mining tax calculated based on the extraction volume in the year in question (in accordance with the provisions in force on 31 August 2023) and the mining tax already paid in the year in question, as well as the mining tax calculated on the difference between the extraction volume agreed and the volume extracted. In this case, the amount of the mining tax shall be determined by applying the annual or half-yearly average price based on the monthly averages of daily quotation prices of TTF natural gas or Brent crude oil on the stock exchange for the second half of 2023.
• If the company does not sign an official contract, it is required to pay the mining tax according to the provisions in force on 31 August 2023. In this case, the mining tax cannot exceed 90% of the turnover calculated based on the monthly average of the quoted price of TTF natural gas, and, in the case of crude oil, based on the monthly average of the quoted price of Brent crude oil.
• A further change is that for those fields identified as crude oil and hydrocarbon natural gas fields, the operator is obliged to produce the same quantity of hydrocarbons in 2023 and 2024 as in 2022, instead of 2021.

Government Decree No 320/2023 on certain emergency rules concerning the operators of an installation receiving a significant free allocation of CO2 emission rights

Carbon dioxide quota tax:

• The Decree introduces a new carbon dioxide quota tax for operators of an installation receiving a significant free allocation of CO2 emission rights for the tax year starting after 31 December 2022.
• An operator receiving significant free allocation of emission rights is defined as follows: if the installation received free allocation rights equal to at least 50% of its average total verified carbon dioxide emissions in the four years preceding the current year and whose annual average carbon dioxide emissions during this period exceeded 10 000 tons.
• The tax is based on the amount of carbon dioxide emissions in tons. The tax rate is 40 EUR/tCO2, equivalent in Hungarian forints.
• The taxpayer is obliged to make an advance tax return and payment by the 15th day of the second month following the quarter in question and must provide data on emissions for the calendar quarter.
• By 31 May of the year following the tax year, the taxpayer is required to submit a return to the Tax Authority on its annual tax base and the tax payable. The tax calculated (after the deduction of any tax advances already paid) must be paid by the deadline for filing the return. If the tax advances exceed the calculated tax, the difference is reclaimable from the 31^st May to the deadline for submission.
• The tax base may be reduced by 50% in the tax return if:
  • based on the annual emissions report, the taxpayer's production (of goods) responsible for its carbon dioxide emissions has reached or exceeded 90% of the capacity of its main activity, as specified in the environmental permit, and
  • the capacity of the taxpayer's main activity has not decreased compared to the capacity of the taxpayer's main activity determined in its environmental permit in the preceding year, and
  • the taxpayer's carbon dioxide emission per unit of output has decreased by at least the linear reduction factor required by the European Union.

Transaction fee for the transfer of carbon dioxide quotas:

• The operators of an installation receiving a significant free allocation of CO2 emission rights are liable to pay a transaction fee to the Climate Change Authority provided that they transfer their free carbon dioxide quota.
• The amount of the transaction fee is calculated based on the EEX-EUA exchange rate on the day of the actual settlement of the transfer of the free emission right concerned by the transaction or on the last exchange day by converting it at the daily mid-market exchange rate set by the National Bank of Hungary (Magyar Nemzeti Bank) to Hungarian Forint, the transaction fee being 10% of the latter amount.
• Following the transfer subject to the transaction fee, the operator has 10 days to report the transaction to the Climate Change Authority. This notification must include the account number of the operator involved in the transaction. A notification of the amount of the transaction fee shall be sent by the Climate Change Authority in the form of an account statement following the transaction. The operator must pay the transaction fee to the account number of the Ministry responsible for energy policy within 30 days.