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December 15, 2023

Hungary enacts local legislation on BEPS 2.0 Pillar Two

  • The final Hungarian legislation on BEPS 2.0 Pillar Two was published in the Official Gazette on 30 November 2023. The legislation is considered as final and enacted now. Several changes and fine-tuning were made to the original proposal introduced in October, but the final legislation is in line with OECD Model Rules, Commentary and Administrative Guidance already issued.
  • Hungary will keep its 9% statutory corporate income tax rate in place while introducing a Qualified Domestic Minimum Top-up Tax (2024), Income Inclusion Rule (2024) and Undertaxed Profits Rule (2025).
  • The legislation also includes a new research and development (R&D) qualifying incentive regime.

Executive summary

President of Hungary signed the legislation on BEPS 2.0 Pillar Two on 24 November 2023. The legislation was published in the Official Gazette on 30 November 2023 (available in Hungarian, here).

The final legislation does not include significant modifications comparing to the draft legislation introduced to the Parliament on 31 October 2023. Most of the changes were legal technical clarifications but some also included actual changes.

Based on the final legislation, an Income Inclusion Rule (IIR) and a Qualified Domestic Minimum Top-up Tax (QDMTT) will be introduced from 1 January 2024, and an Undertaxed Profits Rule (UTPR) will apply from 1 January 2025. A transitional Country-by-Country Reporting (CBcR) Safe Harbor and QDMTT Safe Harbor will be available. Covered taxes will include not only corporate income tax but also local business tax, innovation contribution and energy suppliers' tax. A Substance-Based Income Exclusion will be available, and a deferred taxation/tax accounting concept will be introduced for Pillar Two purposes.

A Hungarian holding regime (providing full exemption for dividends and capital gains) will remain in place.

Hungary will not introduce domestic withholding taxes; thus, no withholding tax will apply to any kind of payments that Hungarian entities make to foreign corporate entities.

A new R&D tax incentive regime will be introduced as a qualifying refundable tax credit, potentially resulting in a cash refund.


On 20 December 2021, the Organisation for Economic Co-operation and Development (OECD) released the Pillar Two Model Rules as approved by the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS).1 The Model Rules define the scope and key mechanics for the Pillar Two system of global minimum tax rules, which includes the IIR and UTPR, referred to collectively as the Global anti-Base Erosion or "GloBE" rules.

The Pillar Two Model Rules aim to establish a minimum tax rate for large multinational enterprises (MNEs) on the income generated in the countries where they operate. These rules are presented as a model that jurisdictions can use to develop their own domestic legislation.

In addition, in 2022, the OECD published the Commentary to the Pillar Two Model Rules,2 along with guidance on safe harbors and penalty relief under the GloBE rules.3 As of February 2023, the OECD had also released Administrative Guidance providing additional information on the interpretation and operation of the GloBE rules.4

On 15 December 2022, the Council of the European Union (EU) (i.e., the EU Member States) unanimously adopted a directive ensuring a global minimum level of taxation for MNE groups and large-scale domestic groups in the Union (the Directive).5 The Directive intends to ensure the GloBE rules are implemented in a coordinated manner throughout the EU, as adjusted to comply with EU law and taking into account the specifics of the EU Single Market.

EU Member States have until 31 December 2023 to transpose the Directive into national legislation with the rules applicable for fiscal years starting on or after 31 December 2023, except for the UTPR, which is to be applicable for fiscal years starting on or after 31 December 2024.

Detailed discussion

General overview

The final bill on BEPS 2.0 Pillar Two applies to all MNE groups and large-scale domestic groups with consolidated revenues of €750m in at least two of the last four fiscal years.

The Hungarian legislation reflects to the OECD Model Rules, its Commentary, the Safe Harbor and Penalty Relief, the Administrative Guidance on Pillar Two as well as additional guidance accepted by OECD.

QDMTT and covered taxes

The final legislation incorporates a QDMTT in Hungary at a rate of 15% in line with the OECD Model Rules and Administrative Guidance. However, local business tax, innovation contribution (also known as R&D tax) and energy suppliers' income tax will also qualify as covered taxes for Pillar Two purposes when calculating the jurisdictional effective tax rate (ETR).

Hungary will also apply a Substance-Based Income Exclusion, which is effectively a carve-out for expenditures on tangible fixed assets and payroll costs. The amount of the exclusion feeds directly into top-up tax calculation as it reduces excess profits, which are then used to calculate the initial top-up tax. The amount of exclusion in 2024 is 8% of the carrying value of tangible assets of Hungarian constituent entities and 10% of eligible payroll expenses. Both will be reduced to 5% over a 10-year transition period.

The final legislation clarifies that if the minority-owned group member, joint venture, or joint venture group is a member of several corporate groups, then the QDMTT liability must be fulfilled once to avoid double or multiple taxation. Moreover, the group can choose to apply the substance carve-out and the de minimis exemption every year.

Key takeaway: In-scope MNEs with Hungarian constituent entities should model the impact of the QDMTT. Although the statutory corporate income tax rate remains at 9%, recognizing local business tax and innovation contribution as covered taxes and introducing a substance-based exclusion could significantly decrease the QDMTT burden for MNE groups with significant economic substance in Hungary.

Administrative guidance

The final Hungarian legislation explicitly confirms that the rules should be interpreted in line with the Commentary to the GloBE Model Rules and Administrative Guidance, already issued and to be issued by OECD, to ensure consistency between the Hungarian and OECD rules.

Transitional CbCR Safe Harbor

The final Hungarian legislation includes the transitional CbCR Safe Harbor rules, in line with the Safe Harbors and Penalty Rules. The Transitional CbCR Safe Harbor is a temporary measure that allows an MNE to avoid undertaking detailed GloBE rule calculations if it can demonstrate, based on its CbCR, that it meets one of the following tests for a jurisdiction: (i) revenue and income below the de minimis threshold; (ii) an ETR that equals or exceeds an agreed rate; or (iii) no excess profits after excluding routine profits.

If one of these tests is met, the top-up tax in a jurisdiction for a fiscal year will be deemed to be zero.

Agreed rates for the purposes of point (ii), above, are 15% for Fiscal Years beginning in 2023 and 2024, 16% in the following year and 17% for Fiscal Years beginning in 2026. The detailed rules of the exemption will be regulated by a ministerial decree.

Key takeaway: The application of CbCR Safe Harbor will provide an opportunity for in-scope MNEs with presence in Hungary to significantly to eliminate QDMTT exposure and significantly reduce administrative burdens during a three-year transition period. Getting access to CbCR Safe Harbor will require a complex modeling exercise and, possibly, certain restructuring steps.

Other safe harbors

The final legislation addresses the QDMTT Safe Harbor (referring to it as "exemption") and effectively adopts the local financial accounting standard rule in line with the Administrative Guidance issued in July 2023.

As per the QDMTT rules, if all MNE domestic group members and the domestic MNEs keep their financial accounts based on a local financial accounting standard (on which the corporate income tax liability is also determined) or the financial accounts have been audited by an independent auditor, then the domestic excess profit of group members with a low-taxed constituent entity must be determined based on this local financial accounting standard.

However, if not all domestic group members keep their financial accounts based on the same local financial accounting standards or their tax year differs from the MNE's tax year, then the QDMTT should be determined based on the financial accounting standard used to prepare the ultimate parent entity's consolidated financial statements to apply the QDMTT Safe Harbor in Hungary.

The final legislation clarifies that QDMTT exemption under the OECD Model Rules can be applied if the provisions of the OECD Model Rules (including the Model Rules, the Commentary, the Safe Harbors and the Administrative Guidance) and the separate ministerial decree (which is currently under preparation) are also fulfilled. According to the proposal, the QDMTT for the tax year in Hungary must be determined based on the formula for calculating the IIR, but the QDMTT should not be deducted from it.

Key takeaway: Availability of a QDMTT Safe Harbor could result in a significant decrease of administrative burdens but detailed rules are not yet available.

Other significant rules

New R&D tax credit

In addition to the currently available R&D tax incentives (e.g., double deduction of eligible R&D costs), the final legislation on Pillar Two introduces a new R&D tax credit that is structured as a qualifying refundable tax credit for Pillar Two purposes.

The amount of the new tax incentive (potentially cash benefit) would be either:

  • The new tax credit would be calculated as 10% of the direct R&D costs of projects lasting up to five years capped at €55m/€35m/€25m per project depending on the nature of the R&D activities
  • 500 million Hungarian forints (HUF 500m; approximately US$1.4m) for certain research institutes and universities

Eligible costs are defined by the new law, including the following from the direct costs of basic research, applied research and experimental development:

  • Accounting depreciation of the tangible asset used by the researcher-developer for the duration of the R&D project
  • Personal expenditure accounted for the researcher-developer
  • The cost and expenditure of the patent used for the R&D activity
  • Direct operational and operating costs and expenses incurred during the project
  • 20% of the cost of R&D services purchased from third parties, if certain conditions were met

The new R&D credit can be applied up to 100% of the given year's tax liability and is applied before any other tax relief, initially for the direct costs of the tax year of 2024.

However, if the newly introduced tax allowance is applied, it cannot be combined with the current tax benefits with regard to R&D activities.

The Pillar Two compliant qualifying tax credit may result in a cash refund as the taxpayer may request cash reimbursement for unused credits after a four-year period.

Key takeaway: MNEs with significant tax incentives in Hungary will want to review their position and consider switching to the use of the new tax credit, particularly because other tax incentives provided by Hungary are not expected to be redesigned as qualifying refundable tax credits. However, other investment-related incentives are expected to shift to "VIP" cash grants6 instead of the combination of cash grants and tax credits. There are decision points that should be considered before switching to the new R&D incentive system. Complex modeling exercise is required to determine the most suitable alternative.

Deferred tax

Hungarian law/legislation has not defined deferred tax asset and liability until now. Together with the legislation on Pillar Two, the concept of deferred tax will be included in the local accounting rules. Regarding the inclusion of deferred tax accounting during the top-up tax calculation, the final Hungarian legislation refers to the Administrative Guidance and follows the rules set out by the OECD.

It is important to point out that a deferred tax asset can be accounted for if it is likely that the taxpayer will achieve a taxable result in the following business year(s) against which, for example, net operating losses or tax credits can be claimed. Permanent differences that will not reverse in the following business year(s) (e.g., non-business-related costs) should not be taken into account when calculating deferred tax. Recognition of the deferred tax is a possibility — i.e., the company will decide based on its accounting policy whether or not to apply it. If it is applied, the company must recognize the deferred tax asset and deferred tax liability.

Administration and compliance

The group member is obliged to register in that it qualifies as the subject of QDMTT. This should be done within 12 months from the start of the relevant tax year. In addition, the group member must submit a tax return and provide data on the additional tax.

The declaration related to the additional tax must be submitted to the tax authority, and the tax must be paid, no later than 15 months after the last day of the relevant tax year. The tax should be paid in Hungarian forints, US dollars or euros.

As a temporary exemption, the data provision and declaration obligation must be fulfilled within 18 months after the last day of the first transitional tax year. Furthermore, no fine may be imposed for tax years beginning before 31 December 2026 if the group member(s) acted in the way that could be expected from them in the given situation (i.e., acted reasonably).

Next steps

The legislation will be in effect as of 31 December 2023.


For additional information with respect to this Alert, please contact the following:

Ernst & Young LLP (United States), Hungarian Tax Desk, New York

Ernst & Young Consulting Ltd., Hungary (Budapest)

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor


1 See EY Global Tax Alert, OECD releases Model Rules on Pillar Two Global Minimum Tax: Detailed review, dated 22 December 2021.

2 See EY Global Tax Alert, OECD releases Commentary and illustrative examples on Pillar Two Model Rules, dated 21 March 2022.

3 See EY Global Tax Alert, OECD/G20 Inclusive Framework releases document on safe harbors and penalty relief under Pillar Two GloBE rules, dated 21 December 2022.

4 See EY Global Tax Alert, OECD/G20 Inclusive Framework releases Administrative Guidance under Pillar Two GloBE Rules: Detailed Review, dated 9 February 2023.

5 See EY Global Tax Alert, EU Member States unanimously adopt Directive implementing Pillar Two Global Minimum Tax rules, dated 15 December 2022.

6 See; "The Hungarian Government provides a negotiation-based 'VIP' subsidy opportunity for investments greater than EUR 10 million with a certain number of newly created jobs, depending on the purpose and location of the investment."


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