In 2012 there will be an important legislative change concerning the way Hungarian companies are incorporated and registered. We believe it is important to draw your attention to this change, as it may affect the existing and future structure of your borrower’s businesses in Hungary, as well as having the potential to impact their future business transactions.
From 1 January 2012, the consent of the Hungarian tax authority must be sought before a Hungarian company is incorporated, or before its majority owner or directors are replaced. A lack of consent means that the business may not receive a tax number, or, that its existing tax number is cancelled. Without a tax number business activities cannot be pursued, which may lead to the dissolution of existing companies and the denial of incorporation of new ones.
Broadly, the consent will be denied if the majority owner, the director or representative of the company had been involved in the operation of other companies which have accumulated tax arrears, or which were involved in other negligent activities.
For instance, if one of the holding companies of your borrower’s group used to be the majority owner of a subsidiary which was liquidated leaving behind unpaid taxes, then this holding company may no longer be able to incorporate or acquire majority ownership in any other Hungarian companies as a majority owner. Likewise, if one of your borrowers appointed a director to one of their companies who had been involved in accumulating tax arrears in some other company, then there is a risk that their company tax number will be cancelled because of the track record of the director.
There are of course a number of detailed conditions to the above rules, and it is possible to file a challenge when the consent is denied. However, these procedures place a heavy burden of proof on the company and its representatives, which will often make it practically difficult and time-consuming to avert the denial of consent.
For the above reasons it has become imperative that before a company is incorporated, or changes to its ownership structure/directors are implemented, the track-record of the new owners/directors is properly checked and verified. These verifications may either be done through an official procedure or by legal or tax advisers.
Depending on the specifics of your borrower’s businesses, they may begin taking precautionary steps during 2011 to prepare their holding structure for the new rules.
Please do not hesitate to contact us if you need further details on the new rules.
