After a long history of being a preferred location for financing companies, recent experience shows that Hungary seems to become attractive again for intra-group financing structures. International attention towards Hungary is being fuelled by recent changes in US anti-hybrid rules.

The last US tax reform has introduced a number of rules (e.g., the so-called BEAT legislation) to keep taxpayers from eroding the US tax base. Inter alia, these rules have significantly impacted the intercompany financing of US inbound investments by foreign companies, which had so far used structures involving debt-financing. This allowed them to reduce their US tax burden by securing a tax deduction, and to avoid incurring US withholding taxes on outbound cash flows. In order to ensure the effectiveness of the provisions cracking down on such structures, anti-hybrid rules have been implemented, which stipulate that deductions for any interest or royalty paid or accrued amongst related parties or pursuant to a structured arrangement fall within the scope of the US anti-hybrid rules and, in turn, are denied to the extent they are considered to be disqualified hybrid amounts, disqualified imported mismatch amounts or payments subject to the anti-avoidance rule.

The legislation aims to curtail the advantages of financing structures resulting in a deduction/no-inclusion outcome by utilizing hybrid mismatches. However, some planning leeway is still available, e.g., by applying structures that benefit from the favourable double tax treaty between the US and Hungary ("DTT Hungary/US") and make use of a jurisdiction that 

operates a tax regime not taxing foreign source income. In such a structure, the financing company is resident in Hungary and provides a loan to a US subsidiary through a branch located in a jurisdiction that operates a territorial tax regime and has a treaty with Hungary based on which Hungary may not tax the income attributable to the branch (e.g., Hong Kong, Uruguay, Singapore, etc.). The DTT Hungary/US neither provides for withholding tax on interest payments nor contains a "limitation on benefits" clause. This structuring results in no US withholding tax being levied on the interest paid by the US subsidiary to the branch. The branch jurisdiction does not tax the foreign source interest income attributed to the branch. Hungary does not tax the interest income attributed to the branch, either. Distributions from the Hungarian finance company to the foreign parent company are also not taxed by Hungary since it does not levy withholding tax on interest payments, dividends or royalties paid to companies.

In addition to the branch structure, Hungary is often used just as a low tax jurisdiction where a financing company can be established. In this very simple structure, the tax savings arise due to the different corporate income tax rates between the US (21%) and Hungary (9%).