Hungary tax: Deductions on certain transfers to foreign persons tightened

The Hungarian Parliament approved an amendment to the corporate income tax law in February 2010 that affects the deductions of certain expenses.

Specifically, the law has been amended to disallow the deductibility of costs and expenditure incurred on transfers of assets and services provided for no consideration to any nonresident person. These costs will not qualify as being incurred for the operation of the business and, therefore, will be nondeductible for tax purposes regardless of whether a tax treaty is in effect between Hungary and the foreign person's country of residence or whether the benefits are provided to a controlled foreign company. The rules will apply to transactions entered after 15 May 2010.

Corporate taxpayers should ensure that they take these changes into account when determining the appropriate tax treatment of transfers made without consideration both before and after 15 May when calculating the corporate income tax liability for 2010.