Holdings, start-ups and minority interests – based on the draft

The basic formula and its scope

Section 12(3) would direct unlisted corporate interests not regularly traded off-market to Annex 1. Point I would divide equity plus twice earnings value by three, then multiply by ownership share: V = [(ST + 2 × H) ÷ 3] × ownership share. This would not simply reproduce book value, because earning capacity would supply a separate component.

Earnings value would equal average after-tax profit over the last three completed financial years divided by a fifteen-per-cent capitalisation rate. A negative average would mean zero earnings value under Annex 1, point I. The rate would not be a wealth-tax rate. Under point 37 of Section 2, the latest completed accounts would mean those available when preparing the return, not necessarily identically dated accounts across companies.

Holding classification and consolidated information

Under point 15 of Section 2, a holding company would have corporate interests representing at least ninety per cent of total assets in its latest completed-year individual balance sheet. Annex 1, point II would omit earnings weighting and use equity attributable to the ownership share. Ninety per cent would therefore measure asset composition, not shareholder control.

Where the issuer also prepared consolidated annual accounts as a parent, Annex 1, point VII would require consolidated rather than individual valuation data. That would not convert the holding definition's individual-accounts test into a consolidated test. Classification and valuation data would remain separate questions. Point IV's equity adjustments would also apply to holdings.

The start-up rule and its ending conditions

Annex 1, point III would prescribe zero earnings value for a company established without a legal predecessor, excluding holdings, in its founding financial year and the following two years. The formula would therefore yield the ownership share of one-third of equity. This would not be complete exemption or cover every company described as young: predecessor-free establishment and the holding exclusion would remain conditions.

Special treatment would stop from the financial year in which equity in completed accounts exceeded HUF 500 million or available earnings value exceeded twenty-five per cent of equity. Annex 1, point III would then restore point I's general valuation. These would be alternative triggers; the three-year start-up period would not guarantee continued special treatment throughout.

Equity and hidden reserves

Annex 1, point IV(a)–(c) would link hidden-reserve adjustment to HUF 500 million of equity in the latest completed accounts. At or below that level, reported equity would govern; above it, an increase would be required. This would be a company-equity valuation threshold, distinct from the taxpayer's HUF 1 billion net-wealth threshold and the same-sized high-value-property threshold.

The adjustment would cover positive market/book differences for property, corporate interests and securities recorded as fixed assets, less deferred tax and reviewed by an independent auditor. Revaluation adjustments would count; draft-calculated values could represent market values. Under points 14 and 31 of Section 2, reserves could not be negative; without a supportable tax estimate, deferred tax would equal fifteen per cent of hidden reserves.

Reporting differences, dividends and irregular financial years

Annex 1, point IV(d) would require substantive equivalence under other accepted reporting frameworks: equity would mean assets less liabilities, and after-tax profit would mean revenue less expenses and income tax, irrespective of terminology. Point IV(e) would permit deduction of dividends approved or paid after the balance-sheet date only if reported equity still included them.

With only one or two completed sets of accounts, point V(a) would require appropriate use of available data. Profit for financial years shorter or longer than 365 days would be annualised. For foreign companies, point VI would also permit a capitalisation rate based on the country's risk-free interest rate and unlisted-company risk premium, rather than allowing an unrestricted rate choice.

Minority reductions and genuine transaction consideration

Annex 1, point V(b) would permit minority reductions below fifty-per-cent direct and indirect ownership. Values under points I–III could fall by twenty-five per cent for holdings reaching thirty-three per cent, or thirty per cent below that. Exactly fifty per cent would not qualify; exactly thirty-three per cent would enter the twenty-five-per-cent category. This would be an option, not a universal deduction.

Point V(c) would provide a separate transaction route for significant transfers exceeding ten per cent between independent third parties. Consideration could count for one year after sale if it reflected reasonable and probable fair market value. A contractual price would not override the formula merely by existing. The minority-reduction wording would expressly refer to values under points I–III.

When independent business valuation could apply

Section 12(4) would permit independent business value where accounts were incomplete or the Annex became unsuitable because of significant operational changes or special contractual rights and obligations. Subsection (5) would require legal and economic independence from owner, issuer and their direct and indirect owners. The provider would separately need qualifying valuation revenue in each preceding three years.

That would mean annual revenue exceeding HUF 250 million, or exceeding twenty-five per cent of total revenue while reaching at least HUF 50 million. Section 12(6)–(7) would require at least two income, market-comparison or asset-based methods. The report would explain methods, results, final value, weights and reasons, sources, assumptions and adjustments. Expert valuation would not mean an unexplained alternative figure.

Foreign companies and the separate property rule

Section 12(8) would require qualifying business valuation for foreign companies within subsection (3) where hidden-reserve information was unavailable under Section 30(2). That provision would accept compliant company information supplied to persons exercising ownership rights. For domestic issuers, Section 30(3) would propose supplying requested information to the business valuer within thirty days.

Section 12(9) would instead value non-residents' interests in companies holding Hungarian property by their ownership share of the properties' calculated values. Point 5 of Section 2 would refer to an external duties-law definition and foreign incorporation for that company category. Finally, Section 9(2)(a) would link fee relief only to properly substantiated, paid compulsory business-valuation fees, not every optional expert process.

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