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Regarding the development reserves, there was no change in the regulation compared to last year. From 2021, the previous limit of HUF 10 billion has been abolished, and companies will be able to claim this tax base reduction up to 100% of their pre-tax profit from the 2021 tax year.
Since the objective of the tax base allowance is to ensure that the company makes an investment within 4 years of the training, the law provides for a negative legal consequence if the company does not use the development reserve within the deadline or does not use it in full.
In the current uncertain economic situation, companies may adjust their financial plans, postpone certain investments or decide to make smaller investments or not to make them at all.
According to the Corporate Tax Act, "a taxpayer may release the development reserve in accordance with the cost value of the investment made in the four tax years following the tax year of its release, unless it assesses the tax on the released part at the rate prescribed by the provision in force in the tax year of release and the related late payment penalty and pays it within 30 days of the release" - TAO Act. Section 7 (15) This means that it is possible to repay the corporate tax on the development reserve and the late payment penalty earlier within the 4-year period - emphasises Alexandra Márton, Professional Director of ICT Europa Finance Zrt.
This means that if a company finds that it cannot yet realise its previous investment plans, it can pay not only the corporation tax due on the development reserve created in 2018 and due to expire in 2022, but also the corporation tax due on the development reserve committed in 2019 or later years, and the interest on late payments, by the end of January.
In the accounts, the release of the committed reserve must be booked in 2022, and the corporation tax and the late payment interest must also be charged to the 2022 tax year. The tax will only have to be declared on the corresponding line of the 2022 corporate tax return by 31 May.
But what does this mean in numbers?
Let's say that the company set aside a development reserve of HUF 100 million in 2019 to be used by 31.12.2023, but plans have changed, the investment will not be realised, so it decides to release it earlier, on 31.12.2022. In this case, the late payment penalty will be calculated from the deadline for filing the 2019 tax return, i.e. from 01.06.2020 to 31.12.2022 and you will have to repay HUF 9 million in corporate tax and HUF 1 984 thousand in late payment penalties by 31.01.2023. With this step, the company can save the amount of the late payment penalty for 2023, calculated at the current base rate of the central bank (13+5%) HUF 1 610 thousand - warns Alexandra Márton, Technical Director of ICT Europa Finance Zrt.
It is therefore worthwhile, if you have not already done so, to review the amount of development reserves set aside in the coming days, compare it with current investment plans and, if necessary, release it in whole or in part and repay the related corporation tax and interest on arrears.
