Crackdown On Tax Incentives To Follow Hungarian Accession To EU

by Ulrika Lomas, Tax-News.com, Brussels

18 September 2001

According to recent reports, a government decree is expected to be passed in the coming weeks laying down the conditions for regulation of tax incentives when the country accedes to the European Union.

Hungary is scheduled to join in 2004, but at present, many of the tax incentive regulations in force are not in line with EU policy. Having watched the EU Competition Commissioner Mario Monti's recent crusade against 'unfair' tax breaks from the sidelines, the Hungarian government has clearly decided to put its house in order before the EU does it for them.

Experts say that the only reason that the government is not planning to completely do away with existing tax incentives after accession is that Hungary is regarded as a disadvantaged region, and is therefore likely to be allowed to retain a small carrot with which to tempt investors.

After Hungary joins the EU, the authorities have revealed, government approval for tax incentives will become mandatory, over 50% of the equipment brought into the country must be new, investments subject to tax breaks must be in line with emissions and environmental regulations, and certain types of investment will be excluded from the incentive scheme. However, the proposed modifications do not affect long-term tax incentives obtained by existing investors.

There have been mixed reactions within the Hungarian business community to the amendments, but widespread approval of the way that the government has handled the introduction of the proposed measures, which has allowed investors to include them in their business plans ahead of time. 'This is a very decent way of modifying the law, because investors can know about it in advance, even though the exact date of accession is still uncertain,' Balazs Bekes, tax partner with the Hungarian arm of Deloitte and Touche, told the Budapest Business Journal.

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