New Hungary - USA double-taxation agreement

Image Beetween Hungary and the United States there is an existing treaty on preventing double taxation and tax evasion since 1979. The treaty as amended and supplemented in some parts of a significant variant of this year, in 2010, was signed on behalf of the two countries' representatives. The new agreement particularly affects the taxation of income from immovable property, the term of permanent establishment and pay-off affiliated companies. In addition to general restrictions will be introduced to obtain the benefits provided by the treaty, which is widely expected to affect the economic relations between the two countries, mainly for tax optimization structures may need to be modified.

income from immovable property: a new option

The treaty enacts a new provision that taxpayers taxable on a gross basis after income from real property may choose to pay tax in the other contrqacting state of treaty. The change is possible in principle for fiscal year, fiscal year be changed.

Permanent establishment

Research and development costs are removed from the list of reducing items can be deduct from the profit attributable to the permanent establishment.

Profits gained from delivery of goods for the permanent establishment was removed from profits not attributable for the permanent establishment. As a result an US resident company`s permanent establishment in Hungary has to pay tax in Hungary on profits gained on the delivery of goods.

Another important provision is that the method of calculating profits attributable to the permanent establishment shall only be changed if good and sufficient reasons for this exist.

Affiliated companies

New rules was inserted to the treaty on transfer pricing, so determining the profit of an affiliated company shall be taken into account the effect of contractual provisions differs from agreements between independent enterprises.

Limitation on benefits of the Convention

The use of edible benefits under the Convention on general restrictions were made. Thus, the benefits are generally not available if the taxpayer's personal circumstances do not meet the conditions set out in the Convention. In all cases, individuals are entitled to benefits. The companies, however, a number of optional criteria are recognized as the most important in the stock market penetration, the home state is the primary place of business management and control, active pursuit of business in the state of the registration, or a multinational company center. The convention determines the details in deep.

Deeper and broader tax planning

The limitations set out in the convention necessitates deeper and wider tax planning to take advantage of the benefits of the convention.

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