Hungary: New tax on financial transactions

The new tax will be levied on those payment service providers (PSPs) which have their registered seat or branch office in Hungary. Only the National Bank of Hungary will be exempt; it will need to pay tax only when issuing central bank securities with a term not exceeding two weeks and accepting central bank deposits with a maturity of between one day and two weeks.

The European Central Bank has criticised the new law, stating that it compromises the National Bank of Hungary's functional and institutional independence.

The tax must be paid monthly. PSPs must specify, on their clients’ account statements, the amount of tax payable on applicable transactions.

The following transactions will be taxed:

• transfers of funds;
• direct debits (collection);
• payments initiated by the payer through the beneficiary;
• cash payments initiated through the Hungarian Post Clearing Center;
• payments from a payment account;
• cash transfers;
• letters of credit;
• cheques made out to cash;
• central bank securities issued for a term of no more than two weeks;
• central deposits with a maturity of between one day and two weeks; and
• payment orders leading to a reduction in the payer’s account balance.

Transactions which will be exempt from the tax include:

• transfers between accounts held with the same PSP where payer and payee are the same person;
• group financing where both accounts are held with the same PSP; and
• transactions by the PSPs debiting the account of other Hungarian or foreign PSPs, financial or investment institutions or investment funds.

It appears that cash pooling can fall under the exemption unless the group members use different PSPs. Careful analysis of the details of each cash pooling arrangement is required to determine whether any elements of the cash pooling structure may actually still be subject to the tax. Certain cross border services may also benefit from an exemption if carefully structured.

The tax base will be the amount which the PSPs debit from the payer’s account, namely:

• the amount specified in a cash transfer order;
• the issue price of central bank securities issued for no more than a two-week term;
• the deposit amount of a central deposit with a maturity of between one day and two weeks;
• the amount transferred to the payee of any cash payment initiated through the Hungarian Post Clearing Center.

Transactions will be taxed at a rate of 0.1 % but the levy cannot exceed HUF 6,000 per transaction. This cap will not apply to transactions by the Hungarian Post Clearing Center, the Hungarian Treasury or the National Bank of Hungary. The rate will be 0.01 % for central deposits with a maturity of one day.