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The ‘letterbox’ neither suffices for VAT

nternational tax structures fail more and more often due to the lack of real economic presence. These days both foreign and Hungarian tax authorities analyse in detail whether a legal entity has real economic nexus to the country where it was established. While tax investigations in the past primarily focused on corporate income tax reassessments, a recent decision of the Court of Justice of the European Union (“ECJ”) pointed out that the lack of real economic presence may also entail significant VAT consequences.

In order to mitigate their tax liabilities international organisations regularly establish group companies in favourable tax jurisdictions and channel income to these companies. While tax havens are one of the alternatives, Dutch holding companies, Luxembourg financial centres or even Hungarian intellectual property holdings are equally popular. More…