Critical Thinking Questions GloBE Hungarian Tax System

Critical_Thinking_Questions_GloBE_Hungarian_Tax_System 1. Question: Why might the Global Minimum Tax (GloBE) increase administrative burdens for both taxpayers and tax authorities, despite aiming for more transparency? Answer: Because while GloBE creates a standardized framework, it introduces complex calculations (like ETR assessments and top-up taxes) that must be separately computed from domestic tax systems, requiring new reporting, reconciliation, and audit processes. 2. Question: How does the Hungarian local business tax potentially help multinational enterprises (MNEs) meet the 15% effective tax rate under GloBE? Answer: Since local business tax is considered a covered tax under GloBE, it can be blended with corporate income tax, thereby increasing the overall jurisdictional ETR and helping MNEs meet the 15% threshold without additional top-up taxes. 3. Question: What risks might Hungary face if it maintains non-qualified refundable tax credits (NQRTCs) under the GloBE framework? Answer: NQRTCs could distort Hungary’s tax incentives, as such credits are disregarded under GloBE rules, effectively neutralizing their benefits and potentially discouraging foreign investment that relies on these incentives. 4. Question: Why is it significant that GloBE applies regardless of Member States’ existing corporate tax structures? Answer: Because it limits national sovereignty over tax policy by imposing an external minimum standard, forcing countries to adjust their systems or risk losing revenue to other jurisdictions through top-up taxes. 5. Question: In what way does the participation exemption regime in Hungary reduce the domestic ETR under GloBE calculations? Answer: Because dividends, including from portfolio investments, are exempt from Hungarian corporate income tax but are not fully excluded under GloBE, leading to a lower jurisdictional ETR and possible top-up tax obligations. 6. Question: How could the new QDMTT (Qualified Domestic Minimum Top-up Tax) protect Hungary’s tax base? Answer: QDMTT allows Hungary to collect the top-up tax domestically rather than losing it to the parent company's jurisdiction, thus maintaining tax revenues within Hungary even if companies’ effective tax rates fall below 15%. 7. Question: Given that R&D deductions can significantly reduce Hungarian corporate income tax to near 0%, how should Hungary adjust its R&D incentives under GloBE? Answer: Hungary should convert R&D incentives into qualified refundable credits or direct cash subsidies to ensure they are GloBE-compliant and still attractive to investors. 8. Question: What is the potential impact on Hungary’s competitiveness if most of its incentives reduce the GloBE ETR? Answer: Hungary may struggle to attract MNEs who prioritize low ETRs if additional top-up taxes neutralize the benefits, forcing Hungary to redesign incentives to remain competitive globally. 9. Question: Why does the legislative response avoid changing the Hungarian corporate income tax rate from 9%? Answer: Because most companies are either out of scope or can blend different types of taxes to reach a 15% ETR, and maintaining a low nominal rate preserves Hungary’s reputation as a low-tax jurisdiction. 10. Question: How can blending high-tax active income with low-tax passive income help MNEs in Hungary avoid top-up taxes under GloBE? Answer: By aggregating income and taxes across activities within the same jurisdiction, companies can offset low-taxed passive income with highly taxed active income to achieve an overall ETR above 15%, minimizing top-up tax liabilities.