Hungary’s Ambitious Step Towards Implementing Pillar Two Minimum Taxation

October 27, 20230



On October 17, 2023, the Hungarian Ministry of Finance made a significant move by launching a public consultation on a draft bill aimed at incorporating the OECD’s Pillar Two Model Rules in alignment with the EU Minimum Tax Directive. This article provides an in-depth analysis of the proposal, outlining its key features and the potential implications for businesses, investors, and the broader tax landscape. 


Pillar Two Implementation Timeline 


The cornerstone of the Hungarian draft bill is the implementation timeline for the Income Inclusion Rule (IIR), the Undertaxed Payment Rule (UTPR), and the Dispute Resolution Mechanism (DMTT). Starting from financial years commencing on or after December 31, 2023, the IIR will come into force. The UTPR, on the other hand, will be applicable one year later, from the financial year beginning on or after December 31, 2024. A noteworthy exception occurs when the Ultimate Parent Entity (UPE) of a multinational group is located in an EU Member State that has opted for the IIR and UTPR deferral under Article 50 of the Directive. In such cases, the UTPR becomes effective as early as December 31, 2023. 


Dispute Resolution Mechanism (DMTT) 


The draft bill introduces the Dispute Resolution Mechanism (DMTT) effective for financial years commencing on or after December 31, 2023. Notably, Hungary’s DMTT is designed in accordance with the OECD’s Qualified Domestic Mismatch Tax (QDMTT) guidance, ensuring international consistency. To compute the Hungarian DMTT, the draft specifies reliance on the local financial accounting standard, aligning it with the OECD QDMTT Safe Harbour guidance. 


Safe Harbors for Stability 


In a bid to provide businesses with some degree of certainty during this transitional period, the draft incorporates two significant safe harbors. First, it codifies the agreed transitional Country-by-Country (CbyC) Reporting Safe Harbour, aiming to facilitate smoother compliance. Second, it establishes QDMTT safe harbor provisions, where the IIR and UTPR Top-up Tax is deemed zero in Hungary concerning jurisdictions implementing a QDMTT, subject to specific conditions. These provisions aim to minimize tax uncertainty for multinational entities. 


Reference to International Guidance 


The draft bill recognizes the importance of international cooperation and alignment with global tax standards. It makes explicit reference to the OECD Commentary, the GloBE Implementation Framework, and the OECD Administrative Guidance as relevant sources for interpreting the local legislation. This not only highlights Hungary’s commitment to international tax reform but also provides tax professionals and investors with valuable resources for navigating the proposed regulations. 


Administrative Requirements and Accompanying Measures 


Under the proposed legislation, each Constituent Entity of a multinational group is obligated to file a Group Interest Report (GIR) within 15 months following the end of the Reporting Fiscal Year (18 months for the transitional year), with certain exceptions. Moreover, any top-up tax liability must be declared and settled within the same time frame. Additionally, the draft introduces accompanying amendments to the Corporate Income Tax Act, Local Business Tax Act, and Accounting Act, further aligning Hungary’s tax framework with international standards. 


Act Now: Public Consultation 


Comments on the draft bill are actively sought, with the deadline for submissions set for October 25, 2023. This engagement with stakeholders is an essential part of the legislative process, ensuring that the final law takes into account various perspectives. 




Hungary’s proposal to implement minimum taxation under Pillar Two represents a significant step in international tax reform. With a clear timeline, safe harbors, international references, administrative requirements, and an open call for public input, this proposal reflects Hungary’s dedication to harmonizing its tax laws with global standards. Tax professionals, investors, and businesses operating in Hungary must closely monitor the progress of this legislation to navigate the evolving tax landscape effectively. This is an important moment in international taxation that demands engagement and understanding from all relevant stakeholders. 


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