Global Minimum Tax - The application of the safe harbour rules may come with major advantages

In line with the OECD model rules and guidelines, the relevant Hungarian legislation also allows groups to take advantage of the transitional safe harbour rules. The application of the safe harbour rules is subject to election and can benefit constituent entities located in Hungary in two ways:

• if the Hungarian constituent entities comply with the relevant rules, the amount of the Qualified Domestic Minimum Top-up Tax (“QDMTT”) payable in Hungary should be deemed zero, and
• if the group meets the safe harbour criteria in another jurisdiction, the top-up tax assessed with respect to that jurisdiction should also be deemed zero and the Hungarian constituent entities should not be subject to any top-up tax with respect to that other jurisdiction.

In order to qualify for the above safe harbour, groups need to meet at least one out of three simplified tests (mainly based on CbC data) in the given jurisdiction for the relevant fiscal year. It is important to note that the exemption is only available for a transitional period, covering fiscal years starting on or before 31 December 2026. Therefore, the exemption is practically available for the first three years of the new global minimum tax regime, with the condition that if a group does not apply the safe harbour rules in a given fiscal year (because it fails to meet the relevant requirements or does not make the related election), it would not be able to apply it in subsequent years.

The safe harbour means a major advantage for groups in a given jurisdiction, as:

• they will be exempted from the calculation and payment of the top-up tax,
• their compliance obligations will be simplified, and they will only need to report those data that are necessary to calculate the simplified tests for the jurisdiction concerned,
• they will buy some time to comply with the extensive and complex set of requirements imposed by the general GloBE and QDMTT rules e.g., to set up the necessary internal protocols, analytical records, and deferred tax accounting system,
• the safe harbour also extends the transition period under the general GloBE and QDMTT rules, which can be advantageous in terms of obtaining and utilizing development and/or energy efficiency tax credits,
• if it can be demonstrated that the group meets the requirements of the transitional safe harbour based on historical or year-to-date data, the preparation of intra-group interim reports and tax provisions will also be simplified as there will be no need to calculate the top-up tax under the general rules.

Following from the above, assessing the eligibility of groups for the transitional safe harbour should be one of the first steps during the preparation for the upcoming global minimum tax regime.

Beside the benefits of the transitional safe harbour, it is important to note that although the relevant tests are significantly simplified compared to the general GloBE and QDMTT rules, there may still be some special rules and adjustments that require special attention. Within the framework of our services, we would be happy to assist groups with the safe harbour tests and the preparation for the global minimum tax regime in general.