In 2012 the Hungarian Parliament built in the possibility of future FTT payment duty on securities and securities based derivative transactions into the regulations of Act CXVI of 2012 on Financial Transaction Duty. The law on FTT does not specify clearly all details at this stage, only some general rules. These regulations have not taken effect yet. It may also happen that before the actual effective date the law will be modified further so at this stage it is not possible to articulate any precise framework.
UniCredit Bank Hungary started to interpret the available wording of the law and based on this exercise we would like to share the following understanding. Please note that this information is based solely on UniCredit Bank Hungary’s current interpretation and it may change in line with any further amendments of the related regulations.
Securities affected by the FTT
The types of securities are currently not specified in the regulation so the current interpretation is that all kinds of securities are in scope, except the debt instruments issued by the National Bank of Hungary.
Securities transaction types affected by the FTT
The law says that the transfer or acquisition of securities is a condition, but the issue of ownership is not clarified. Therefore, there might be an interpretation that FTT will only apply if there is a change in beneficial ownership. It still shall be clarified how the Hungarian service provider, that will be liable for the deduction and payment of the FTT, will be in the position to determine whether the beneficial owner changed. It is not clear either if in case several intermediaries are involved in the same transaction (e.g. foreign investor-foreign broker, foreign broker-local broker, local broker-local custodian, etc.), where and how the FTT shall be determined. An alternative interpretation is that all transfers are subject to FTT, irrespective of the beneficial ownership.
Due to lack of clarity and based on the current wording it is suspected that both the buy and the sale side of the transaction will be taxed and the cash leg of the RVP transaction will be taxed with the cash FTT in addition (currently 0.3%, but maximum HUF 6,000).
FTT rate
The FTT rate on securities transactions shall be 0.1% while 0.01% in case of derivative transactions based on securities. The basis of the FTT will be the counter value of the securities transaction or in case the counter value cannot be determined, than the market value of the securities. In case of a derivative transaction the nominal value will be used. Currently no cap is set in the regulations.
Effective date
The effective date of the securities and derivative related FTT is not precisely set either. It is stated in the regulations that the effective date is the first day of the calendar year following the date of approval of the proposal for a directive on harmonized financial transaction duty at the EU level. It will be clarified further, once the discussions move ahead and the 11 participating Member States agree on the Directive or the Hungarian law is amended and a precise effective date is set.
Related Newsflash: Newsflash Hungary - Financial Transaction Tax on securities and derivative transactions to be introduced
Impact on investors: Securities and derivative transactions that are based on securities will be taxed with an FTT. The detailed rules are not yet worked out and market participants are waiting for further regulation amendments and official interpretation on the subject.