background image
3.2. Practical Aspects of Tax Residence

There is no case law available dealing with the interpretation of the residence criteria in practice.

As seen above, an entity is deemed to be a Hungarian resident if it is either incorporated in Hungary or if it has its POEM in Hungary. If the entity’s registered office is located in Hungary, which can be easily verified from the Hungarian company register, then the entity is deemed to be a Hungarian resident under the Act LXXXI of 1996 on Corporate Tax (“CIT Act”). In order to determine the location of the POEM and the tax residence in a tax treaty situation (including the minimum substance requirements), factual circumstances and the sections of the relevant tax treaty need to be analyzed in each case.

Under the Hungarian CIT Act, the registered office forms a presumption of tax residence which is rebuttable only in situations covered by a tax treaty. If the address in the deed of incorporation is located in Hungary, the entity implicitly indicates that the POEM is also located in Hungary, but by invoking a tax treaty the taxpayer is entitled to rebut this presumption by proving that its POEM is in fact located elsewhere.

The place where the executive officers (managing directors of limited liability companies, or board of directors of private companies limited by shares) meet and where usually their duties are carried out, could be a first indication of the POEM, but this indication is merely a rebuttable presumption.

Hungary has made, however, a reservation on the OECD Commentary in this respect. Accordingly, Hungary is of the opinion that in determining the POEM, one should not only consider the place where key management and commercial decisions that are necessary for the conduct of the entity’s business as a whole are in substance made, but should also take into account the place where the chief executive officer and other senior executives usually carry out their activities as well as the place where the senior day-to-day management of the entity is usually carried out.