As tax grouping arrangements have become more established, an increasingly common question is what happens when a group sells a company that belongs to a VAT or corporate income tax group and the company consequently ceases to meet the membership conditions.
Both the VAT Act and the Corporate Income Tax Act present challenges for those affected.
The VAT Act, for example, does not specifically address this situation. Indeed, under the wording of the Act, if even one member ceases to be a related party, the entire VAT group is dissolved. When a company in a VAT group is sold, it is therefore essential for the VAT group to apply for that member to leave the group in advance.
The Corporate Income Tax Act provides an appropriate legislative framework: if a member ceases to be a related party, the Hungarian National Tax and Customs Administration (NAV) terminates only that company's group membership. The difficulty here is procedural. NAV has not yet published a form on which the change can be properly notified. This is not a voluntary withdrawal, for which a form exists, but a notification of a change; however, the change notification form has no relevant section. According to NAV, the change can therefore only be reported by submitting a withdrawal application, a procedure that does not align with the legislation.
The key lesson for members of tax groups is that a company sale requires careful handling from a tax grouping perspective as well.
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The deadline for the global minimum tax information return and the top-up tax return for the 2024 tax year is approaching. Although the GIR is often filed by a foreign group entity, Hungarian group entities may still have related notification and coordination tasks.
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