Following the first version approved in July 2012 the Hungarian Government put together a package modifying the act on Financial Transaction Tax (FTT). The proposals have been approved by the Parliament and the wording of the act has been officially published so that it is under interpretation in the market. There have been indications from the Government that until the implementation date further clarifications may happen meaning that the wording of the act is expected to change still during December. According to the latest reading and our understanding the following FTT regime will apply in Hungary.
The bill on FTT applies to all institutions resident in Hungary or having branch offices in Hungary and that are engaged in payment services or money exchange, including but not limited to financial institutions. The FTT shall be effective 1 January 2013 meaning that the value date of a subject transaction is 1 January 2013 or later.
The standard rate of the FTT will be 0.2% based on the value of the transaction with the exception of cash withdrawals when the tax rate shall be 0.3%. The FTT would be capped at HUF 6,000 per transaction with some possible exceptions however it is under clarification as this point of the act is ambiguous.
The act determines the scope of the FTT as follows: money transfers, collections, direct debits, cash withdrawals, money remittance (paid through cashier), letters of credit, cheque collections, money exchange, amortization of loans and as the latest new element, charging of fees and commissions.
Certain transaction types will not form the basis of the FTT, namely payments effected between own accounts (or if the owners of the accounts are at least partly identical) kept by the same payment service provider; payments conducted over special client accounts or other accounts in relation to investment services; securities related transactions; provision of group financing provided that all group members keep accounts at the same provider; transactions carried out against current accounts maintained for domestic or foreign payment service providers, financial institutions, investment service providers, fund managers as well as payments against the accounts of investment funds, including amortization of loans; certain transactions of the State Treasury (e.g. state and EU subsidies, pension payments, etc.); all payments conducted on limited usage accounts; and incorrectly executed payment transactions, authorized or otherwise, including the payment transaction executed to restore the payment account to its original state.
The regulation makes the payment service providers liable for the payment of the FTT. Service providers will need to indicate the tax amount relevant to each subject transaction on the clients’ account statements at least once a year.
Generally speaking the basis of the FTT shall be the amount debited. When determining the duty amount for the sake of calculation foreign currency transactions shall be converted to HUF at the official rate of the NBH as of the value date of the transaction.
Liable parties shall file and pay the FTT by the 20th of the month following the completion of the transaction in scope.
The Government built in the possibility of future FTT payment duty on securities and derivatives transactions in the regulations. Should the EU wide initiative in relation to FTT payment obligation of such transactions come into effect, Hungary will start applying the regime on the first day of the year following the implementation in EU. The FTT rate on securities transactions shall be 0.1% while 0.01% in case of derivatives transactions. The basis of the FTT will be the counter value of the securities transaction or in the lack of that the market value of the securities and in case of derivatives transaction the nominal value will be used.
Impact on investors: Local service providers will be subject to the FTT however the regulation does not restrict them to pass the FTT on to their clients. Further communication from banks, including UniCredit Bank Hungary, can be expected on the subject. Based on latest information clients of UniCredit Bank Hungary’s Global Securities Services, being banks and other financial institutions, will not be liable to FTT in 2013.