Hungary is to opt out of the proposed EU
competitiveness pact because of its opposition to the proposed
adoption of a common consolidated corporate tax base.
Euro-zone leaders agreed the competitiveness pact
to increase market confidence as they seek to end the euro debt
crisis. EU member states outside the euro-zone, such as Hungary,
are allowed to opt out of the pact. The common consolidated
corporate tax base is an important, but controversial part of this
In addition to unifying the rules of calculating
the corporate income tax base, the proposed Directive on the common
consolidated corporate tax base would allow cross-border
consolidation of profits and losses and eliminate the need to apply
transfer pricing legislation for intra-group transactions within
the EU. Corporate tax rates would remain in the competence of each
Member State and thus rest unharmonised.
Hungary’s Prime Minister has said that, from
a strategic point of view, he did not support the proposal for
member states to adopt a common consolidated corporate tax
However, he expressed support for the other main
objectives of the pact, as they are consistent with Hungary’s
recently announced budgetary reforms. These are: enhancing
competitiveness, boosting employment, improving the sustainability
of public finances and strengthening financial stability.
The Ministry of National Economics has said that
the pact does not fit into Hungary’s corporate tax policy.
According to its calculations, the proposed common consolidated
corporate tax base would cause a drop in Hungary’s corporate
income tax revenues, end the tax system’s flexibility and
jeopardise revenues from the local business tax.
Even Brussels estimates that this step would reduce
Hungary’s GDP by 0.2-0.9 percentage points. This seems
largely due to the proposed apportionment formula for distributing
the consolidated tax base among the countries in which the
corporate group has its subsidiaries. This does not seem to favour
CEE countries, due to its heavy reliance on sales revenues and