On 9 July, the Hungarian Government adopted Act CXVI of 2012 on Financial Transactions Tax, which levies tax on payment services. The Hungarian government claims that this new tax - which is also being referred to as a "financial transaction levy" - is aimed at supplementing the extraordinary tax levied on Hungarian credit institutions. The tax comes into effect and will be payable as of 1 January 2013.
Each regulated entity having a registered seat or branch office in Hungary and whose business include the provision of payment services will be subject to the new tax. Although the payment service providers ("PSP") must declare and pay this new tax themselves, the extra cost incurred by the new tax may be incorporated in the fees payable by their clients. The basic rate of the new tax is 0.1 per cent of the amount concerned in the course of the payment service, but a maximum of HUF 6,000 per transaction. Such a limitation does not apply to the Hungarian National Bank when acting as PSP. A special tax rate applies to the one day to two weeks deposits managed by the Hungarian National Bank, namely 0.01 per cent of the amount deposited.
Certain payment services are exempted from the tax, in particular: (i) transfers of money between accounts of the same person held at the same PSP; (ii) transactions subject to Act XXIII of 2003 on Finality in payment and securities settlement systems; (iii) payment services that facilitate the liquidity management of a group (group financing), provided that the accounts of the members of the group are held at the same PSP; and (iv) payment services provided by a PSP to another PSP.
The introduction of this new tax was not free of controversy. Certain experts allege that the expansion and development of the payment service market in Hungary may be adversely affected, as the new tax will promote cash transactions in the retail sector, should the PSPs decide to pass on the tax burden to their clients by raising the fees payable in connection with payment services. The European Central Bank objected to the fact that the Hungarian National Bank is subject to new tax. Furthermore, the European Commission is widely expected to challenge the compliance of the new tax with EU law.
Opening foreign accounts and channeling the cash flow through those accounts, as well as implementing cash pool arrangements between cross border groups of companies, where the master account is managed by a bank seated outside of Hungary, are approaches that would seem to provide safe harbors for corporate clients or – in case of the former scheme – high net worth private clients. However, the feasibility of these structures, and in particular their cost implications, would need to be assessed before they are implemented.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
