EXTRA-PROFIT TAX ON PHARMACEUTICAL MANUFACTURERS WAS INTRODUCED

On January 25, 2024, Government Decree No. 7/2024 (I. 25.) amending Government Decree No. 197/2022 (VI. 4.) on extra-profit taxes (hereinafter: “Amendment”) was published in the official Hungarian gazette Magyar Közlöny. The Amendment came into effect on January 26, 2024.

The extra-profit tax is payable by the pharmaceutical manufacturers in addition to the earlier introduced (June 2023) special pharma tax assessed on pharmaceutical manufacturers.

The tax base for the extra-profit tax is the local business tax base for the 2024 tax year under Section 39 of Act C of 1990 on Local Taxes (hereinafter: the “Local Taxes Act”). Taxpayers preparing their individual financial statements in accordance with IFRS (International Financial Reporting Standards) shall determine their tax base, taking into account the specific tax base determination rules under the Local Taxes Act set forth in Sections 40/B, 40/C, 40/F–40/M.

As of January 1, 2024, the tax rate of the extra-profit tax is as follows:

a) 0.5% on the amount of the tax base not exceeding HUF 50 billion,

b) 4% on the amount of the tax base exceeding HUF 50 billion but not exceeding HUF 150 billion,

c) 7% on the amount of the tax base exceeding HUF 150 billion.

The Amendment allows pharmaceutical manufacturers to reduce their special tax amount with the amount payable under their extra-profit tax.

The rules for determining the tax base and the tax rates for the calculation of the special tax applicable as of January 1, 2024, did not change under the Amendment.

If a pharmaceutical manufacturer’s tax year started in the 2023 tax year did not end at the time of the entry into force of the Amendment, the new rules may apply for the 2023 tax year at the discretion of

the pharmaceutical manufacturer. If pharmaceutical manufacturers choose to apply the new rules introduced by the Amendment for the 2023 tax year, the following tax rates must be considered:

I. The extra-profit tax rate for the 2023 tax year:

a) 1% on the amount of the tax base not exceeding HUF 50 billion,

b) 8% on the amount of the tax base exceeding HUF 50 billion but not exceeding HUF 150 billion,

c) 14% on the amount of the tax base exceeding HUF 150 billion.

II. The special tax rate for the 2023 tax year:

a) 1% on the amount of the tax base not exceeding HUF 50 billion,

b) 3% on the amount of the tax base exceeding HUF 50 billion but not exceeding HUF 150 billion,

c) 8% on the amount of the tax base exceeding HUF 150 billion.

Those pharmaceutical manufacturers whose tax year starting in 2023 did not end at the time of the entry into force of the Amendment may choose to apply the new rules for the 2023 tax year and are entitled to reduce their special tax amount up to the amount of the extra-profit tax.

The Amendment was initiated by those Hungarian pharmaceutical manufacturers which will likely benefit from the fully deductible extra-profit tax.