Although Hungary has quite wide and modern Double Taxation Treaty [DTT] network, there may be cases when the tax burden of a transaction is disadvantageous for the taxpayers. In the case of cross-border transactions involving more countries, double taxation, double-residence, non-applicable tax benefit etc. may occur and this might result for taxpayer in taxation, which is not in accordance with the provisions of the Convention and also results disadvantageous and unfavorable tax treatment.

Among the most common cases, mention must be made of the following:

•     economic double taxation resulting from adjustments made to profits by reason of transfer pricing;
• the questions relating to attribution to a permanent establishment of a proportion of the executive and general administrative expenses incurred by the enterprise;
• the taxation in the State of the payer - in case of a special relationship between the payer and the beneficial owner (related parties) - of the part of interest and royalties which excess the arm’s length price;
• cases of application of legislation to deal with thin capitalization when the State of the debtor company has treated interest as dividend;
• cases where lack of information as to the taxpayer's actual situation has led to misapplication of the Convention, especially in regard to the determination of residence, the existence of a permanent establishment, or the temporary nature of the services performed by an employee.

If the taxpayer considers that the applicable tax legislation is not in accordance with the provisions of the Convention, he is entitled to launch the Mutual Agreement Procedure at the competent authority of the Contracting State of his residence.

Since the Conventions do not include detailed procedural regulations, this is national competence. The detailed procedural regulations are determined by two circulars of the Hungarian Tax Authority in Hungary. One of them is the MAP procedure, which relates to the adjustments made to profits by reason of transfer pricing. The other one covers the non-transfer pricing related MAP issues.

If you consider the applicable Hungarian tax provision to be disadvantageous for you or for the company represented by you and conflicts with the double taxation convention, then it is strongly advised to launch the MAP procedure.