Fundamentals Level Skills Module Taxation (Hungary) Thursday 7 June 2018 F6 HUN ACCA Time allowed: 3 hours 15 minutes This question paper is divided into two sections: Section A ALL 15 questions are compulsory and MUST be attempted Section B ALL SIX questions are compulsory and MUST be attempted Tax rates and allowances are on pages 2 3. Do NOT open this question paper until instructed by the supervisor. Do NOT record any of your answers on the question paper. This question paper must not be removed from the examination hall. Paper F6 (HUN) The Association of Chartered Certified Accountants
SUPPLEMENTARY INSTRUCTIONS 1. Calculations and workings need to be made to the nearest HUF except where stated otherwise in the question. 2. All apportionments should be made to the nearest month. 3. All workings should be shown in Section B. TAX RATES AND ALLOWANCES The following tax rates and allowances applicable to 2017 are to be used in answering the questions. Corporate tax Tax rate 9% Value added tax (VAT) Tax rate 27% Personal income tax Tax rate 15% Benefits in kind Tax rate 15% Social security contributions Employer s contributions Social contribution tax 22% Professional training fund 1 5% Employee s contributions Pension contributions 10% Health insurance contributions 7% Labour market fund 1 5% Company car tax Environmental category Engine capacity of the car (kw) 0 to 4 6 to 10 5 and 14 to 15 0 50 HUF 16,500 HUF 8,800 HUF 7,700 51 90 HUF 22,000 HUF 11,000 HUF 8,800 91 120 HUF 33,000 HUF 22,000 HUF 11,000 above 120 HUF 44,000 HUF 33,000 HUF 22,000 2
Local municipality tax Tax rate 2% Support and subsidies development tax relief The limits applying to subsidies given in the form of tax relief or other subsidies in respect of investments are defined by the following intensity ratios. 1. Regional factors: Central Hungary: 0% Central Hungary (only nominated locations): 20%/35% Western Transdanubia: 25% Central Transdanubia: 35% Other regions: 50% 2. For companies which qualify as being small, 20% is added to the regional factor. For companies which qualify as being medium, 10% is added to the regional factor. 3. The maximum support is calculated by applying the following to the initial investment: On the first 50 million of the investment: 100% of the intensity ratio. On the portion between 50 million and 100 million: 50% of the intensity ratio. On the portion over 100 million: 34% of the intensity ratio. The reference rate to be used in the present value calculations is 1 3%. A company qualifies as small or medium if: Qualifying limits for small and medium sized companies the company has no state or local government members; and the number of employees is less than 250; and total assets are less than 43 million; or total revenues are less than 50 million Euro: 1 = HUF 310 USD: $1 = HUF 280 Exchange rates Official rate of interest National Bank of Hungary (Magyar Nemzeti Bank MNB) 0 90% 3 [P.T.O.
Section B ALL SIX questions are compulsory and MUST be attempted Please write your answers to all parts of these questions on the lined pages within the Candidate Answer Booklet. 1 Gong Kft is a Hungarian entity. Gong Kft has its seat in Budapest, and prepares its value added tax (VAT) returns monthly. Gong Kft provides various services to its clients, all of which are subject to the standard rate of VAT. The following events are relevant to the preparation of Gong Kft s 2017 March VAT return. All amounts are stated excluding any applicable VAT, unless stated otherwise. (1) Gong Kft generated sales revenue of HUF 50 million and made purchases of HUF 10 million. (2) On 1 January 2017, Gong Kft entered into an open-ended rental agreement to lease a machine. The monthly instalment payable under this agreement is HUF 2 million. (3) On 3 February 2017, Gong Kft contracted with a Belgian company to translate a product manual into French. The value of these translation services amounted to 32,000. After delivery of the translation, the Belgian company issued its invoice on 28 February 2017 and Gong Kft received the invoice on 4 March 2017. The invoice was paid by Gong Kft on 4 April 2017. (4) Gong Kft made an advance payment of HUF 1,016,000 including VAT to a Hungarian entity for services to be performed in April 2017. (5) Gong Kft paid an invoice for HUF 70,000 for goods purchased for use in the maintenance of its company cars. (6) Gong Kft used local taxi services costing HUF 50,000. (7) On 21 March 2017, Gong Kft received an invoice of HUF 4 million which related to services delivered by the supplier in the month of January 2017. (8) Restaurant and entertainment services (reprezentázciós költségek) of HUF 300,000 were recognised in March 2017. (9) Gong Kft s monthly accounting reports are prepared by Jelen Bt. Jelen Bt issues an invoice each month, and the value of each invoice depends on the amount of work done by Jelen Bt (időszakos elszámolás alá eső ügylet). The invoice relating to February 2017 for HUF 200,000 was issued on 28 February 2017 and had a due date of 12 March 2017. The invoice relating to March 2017 for HUF 220,000 was issued on 31 March 2017 and had a due date of 12 April 2017. Calculate Gong Kft s value added tax (VAT) payable or deductible for the month of March 2017. Notes: 1. You should list all of the transactions (1) to (9) identifying any which are outside the scope of the Hungarian VAT law by the use of O/S; and for which the VAT suffered is irrecoverable by the use of zero (0). 2. Calculations need only be made to the nearest thousand forints. 9 [P.T.O.
2 Palace Kft is a Hungarian company with its seat in Budapest. Budapest is the only place of Palace Kft s permanent business activities and it does not carry out temporary business activities in any other place. The following is a summary of Palace Kft s financial information for the year ended 31 December 2017: HUF million Sales revenue (including royalty income of HUF 300 million) 1,050 Other income 14 Financial income 56 Cost of raw materials 7 Cost of goods sold 644 Cost of mediated services 22 Cost of subcontracted services (alvállalkozói teljesítmények) 10 Other expenses 3 Financial expenses 5 Palace Kft only has domestic sales revenue, and is not a related party to any other entity either in Hungary or any other country. Palace Kft s annual local municipality tax expense was HUF 2 million for 2015 and HUF 1 7 million for 2016. (a) Calculate the local municipality tax liability (helyi iparűzési adó) of Palace Kft for the year 2017. Note: All calculations need only be made to the nearest thousand forints. (8 marks) (b) Calculate the local municipality tax advances payable by Palace Kft in 2017, and state the deadlines for the advance payments. Note: Ignore any top-up payment required. (2 marks) 10
3 (a) Verde Kft is a Hungarian entity, which is registered for simplified taxation for small entrepreneurs (egyszerűsített vállalkozói adó (EVA)). Both the sales and purchases of Verde Kft attract value added tax (VAT) at the standard rate. Verde Kft maintains its accounting records according to the rules of the Act on Accounting (számviteli törvény). In 2017, Verde Kft generated sales revenue of HUF 25 million (excluding VAT) and its total purchases were HUF 5 million (excluding VAT). In 2017, the total annual salary expense of Verde Kft was HUF 4 million (excluding employer s contributions payable on salaries). Verde Kft has two employees. Verde Kft settles all of its business transactions via its bank account. On 1 January 2017, the opening cash balance on this bank account was HUF 6 million. All sales and purchase invoices as well as all employee-related transactions were financially settled before 31 December 2017. Verde Kft has never had accruals or prepayments in its financial statements. No cash was distributed to the owners of Verde Kft during the year 2017. Calculate the closing cash balance of Verde Kft as at 31 December 2017. Note: The minimum wage in the year 2017 was HUF 127,500 per month. (7 marks) (b) Zebulon is a Hungarian tax resident. On 15 September 2017, Zebulon sold a painting for HUF 12 million. The acquisition cost of the painting was HUF 6 million, and Zebulon spent HUF 1 million on the restoration of the painting. Zebulon incurred costs of HUF 200,000 in relation to the sale. Calculate the personal income tax payable by Zebulon on the income from sale of the painting for the year 2017. (3 marks) 11 [P.T.O.
4 Spare Kft is a Hungarian entity with its seat in Budapest. Spare Kft uses a considerable amount of electricity and other sources of energy in its manufacturing processes, so its energy costs represent a substantial proportion of its cost base. In 2017, Spare Kft decided to invest a significant amount of money in order to improve its energy efficiency. Accordingly, in 2017 Spare Kft spent HUF 500 million to acquire tangible non-current assets. Details of these asset acquisitions are as follows: (1) All of the non-current assets contribute directly to increasing energy efficiency. (2) All of the non-current assets were capitalised on 1 April 2017. The expected useful lives of the assets were estimated to be seven years, and their estimated residual value is HUF 45 million. (3) The tax depreciation allowed by the tax law on the assets is 25% per annum. (4) As a result of this investment the energy efficiency of Spare Kft increased by 10% in 2017, and Spare Kft received an official certificate confirming this fact issued by an approved energy auditor (as required by the Government Decree). Spare Kft wishes to take advantage of the tax relief for investments to increase energy efficiency (energiahatékonysági célokat szolgáló beruházás adókedvezménye). 2017 has been chosen by Spare Kft as the first year of eligibility for this relief. Spare Kft s profit before tax in 2017 was HUF 1,500 million. No other information is relevant to the calculation of Spare Kft s corporate tax liability for the year 2017. (a) Assuming that Spare Kft does NOT qualify as a medium or small-sized entity, calculate its corporate income tax liability for the year 2017, taking into consideration the tax relief for investments to increase energy efficiency. Note: All calculations need only be made to the nearest thousand forints. (7 marks) (b) With respect to the tax relief for investments to increase energy efficiency, explain how the maximum relief available for the year 2017 would change if Spare Kft were: (1) a medium-sized entity; or (2) a small-sized entity. (3 marks) Note: Ignore the impact of any other tax allowances. 12
5 Hyper Kft is a Hungarian company with its seat in Budapest. Hyper Kft is a medium-sized entity, and its accounting year ends on 31 December. For its year ended 31 December 2017 Hyper Kft s profit before tax is HUF 100 million. The following items are relevant to the calculation of Hyper Kft s corporate tax base and corporate income tax liability for the year 2017: (1) On 1 March 2017, Hyper Kft acquired shares in a start-up entity (korai fázisú vállalkozásban szerzett részesedés) for HUF 100 million. Hyper Kft has never held shares in this start-up entity before 1 March 2017. The start-up entity has ten employees, three of whom are directly involved in research and development activities. The start-up entity meets all the legal criteria of a start-up entity as set by the Hungarian Act on Accounting. (2) On 1 March 2017, Hyper Kft signed a loan contract with a bank in order to acquire Asset W, a tangible non current asset. The loan was for HUF 200 million and Hyper Kft acquired and capitalised Asset W at HUF 200 million on 1 March 2017. The estimated useful life of Asset W is ten years and its residual value is expected to be HUF 5 million. The tax law allows depreciation of 14 5% per annum on Asset W. Asset W does NOT qualify as a tangible non-current asset serving the business directly (műszaki gép, berendezés). Hyper Kft recognised an interest expense of HUF 11 million in respect of this bank loan in its financial statements for the year 2017. All the other non-current assets of Hyper Kft are depreciated at the same rate for both accounting and tax purposes. (3) Hyper Kft recognised an impairment loss of HUF 10 million on a registered shareholding acquired and registered with the tax authorities in 2015. (4) In 2016, Hyper Kft had generated a tax loss (negative corporate tax base) of HUF 25 million. Hyper Kft wishes to use this tax loss in its corporate income tax return as soon as possible. (5) Hyper Kft recognised royalty income of HUF 50 million in 2017. The intangible asset, from which the royalty income was realised, had been acquired by Hyper Kft in 2015 from an independent party. (6) Hyper Kft derecognised provisions of HUF 5 million in 2017. (a) Explain how the corporate income tax base is adjusted if an entity acquires shares in a start-up entity (korai fázisú vállalkozásban szerzett részesedés adóalap-kedvezménye). (5 marks) (b) Calculate the corporate income tax liability of Hyper Kft for the year 2017. Note: All calculations need only be made to the nearest thousand forints. (15 marks) 13 [P.T.O.
6 Robert is a citizen of Country F. He has been living in Hungary for the last ten years with his Hungarian wife and two children, who are both beneficiary dependants (kedvezményezett eltartott). On the basis of his declaration, Robert is entitled to claim 100% of the family allowance. Robert kept his citizenship of Country F and has a permanent home both in Hungary and in Country F. In 2017, Robert travelled abroad for a lot of the time due to his work commitments, and spent only 195 days in Hungary. Robert is a full-time employee of a Hungarian company, Red Kft. The following information is relevant to the calculation of Robert s personal income tax for the year 2017. (1) Robert received a monthly salary of HUF 2 5 million from Red Kft throughout the year 2017. (2) In 2017, Robert realised capital gains of HUF 7 million on regulated market transactions (ellenőrzött tőkepiaci ügylet). In 2017, Robert paid HUF 200,000 to the financial services broker who arranged all of these transactions. In 2016, Robert had realised a net loss of HUF 1 8 million on regulated market transactions, and had declared this loss in his personal income tax return for the year 2016. (3) In 2017 Robert also realised capital gains in Country X. Robert received $10,000 net of tax at 20% withheld by the tax authorities of Country X on these capital gains. There is no double tax treaty between Hungary and Country X. In addition to his salary, Robert received the following benefits in kind from Red Kft in 2017: (i) Robert was allowed to use his company mobile phone for private purposes as well as for business. Robert was not required to separate his business and private calls, and was not required to reimburse any phone costs to Red Kft. The total phone expense incurred by Red Kft on Robert s company mobile phone in 2017 was HUF 200,000 (excluding value added tax). (ii) Red Kft transferred HUF 15,000 per month to the accommodation services account of Robert s Széchenyi Card (Széchenyi-pihenőkártya szálláshely alszámlája) throughout the year 2017. (a) State the reasons why Robert will be considered resident in Hungary for tax purposes in 2017. (b) Calculate Robert s personal income tax liability for the year 2017. (3 marks) (6 marks) (c) Calculate the personal income tax and health care contributions (egészségügyi hozzájárulás) payable by Red Kft for the year 2017 on the benefits in kind (items (i) and (ii)) provided to Robert. (6 marks) (15 marks) End of Question Paper 14