How Hungary's position at the intersection of Pillar Two, Decree 45/2025, and the transition to electric vehicles has become a real-world test case for industrial investment in CEE.
BMW is building its most advanced electric vehicle plant in Debrecen. BYD is launching its European production in Szeged. And every multinational exceeding €750 million in consolidated revenue is now subject to a global minimum tax of 15 %— with a local rate of 9 %. Can industrial substance truly protect a production site’s economy when global tax architecture is specifically designed to neutralize the advantages of nominal rates? Hungary has become the real-world test case for this question — but the answer has implications for all CEE industrial hubs, as well as for all multinational groups exposed to European production.
The mechanism that determines exposure
Pillar Two was designed to prevent profit shifting—that is, the allocation of profits to low-tax jurisdictions lacking real economic activity. Hungary's automotive sector presents the inverse profile. It has factories, equipment, labor, engineering capabilities, and, in Debrecen, a production site setting a global standard for automotive manufacturing.
The protection mechanism is the Substance-Based Income Exclusion (SBIE): an exclusion mechanism that deducts a percentage of eligible tangible assets and payroll from the calculation of the top-up tax. For a capital-intensive OEM-level manufacturer, the figures are as follows:
Scenario A: OEM-level manufacturer (€400M assets | €80M payroll | €55M GloBE revenue)
| SBIE Rate (tangible assets / payroll) | 7,4 % / 9,4 % | 6,6 % / 8,2 % | 5,0 % / 5,0 % |
| Total exclusion SBIE | 37.1 million euros | 33,000,000 | 24.0 million euros |
| Effective rate after withholding tax | 48,9 % | 39,8 % | 28,2 % |
| Supplementary tax | null | null | null |
For Tier 2 suppliers with a lighter asset base, the protection remains, but the margin narrows to 2.5 percentage points above the 15 % threshold by 2033—and does not withstand asset restructuring or depreciation without replacement. Full modeling in the white paper.
For truly capital-intensive operations, protection is maintained across all three time horizons. What this table does not show — but the white paper models — is that SBIE decreases each year, with a marked acceleration from 2029. Groups must model this inflection point now, not when it occurs.
The advantage most groups haven't modeled
Hungary's position regarding Pillar Two features a second level that is largely underweighted in most modeling.
The definition of covered taxes in Hungary includes not only corporate tax but also a local business tax and an innovation contribution – levied on a broad base which, for industrial entities, frequently exceeds the corporate tax base. For many car manufacturers in Hungary, when the covered taxes are properly aggregated, the effective tax rate at the jurisdictional level already reaches or exceeds 15 % even before the application of the SBIE.
This result depends entirely on the correct allocation of profits. The transfer pricing methodology determines the share of GloBE income attributable to Hungary. If the entity is characterized as more routine than its actual functions justify, the GloBE income is underestimated—and the entire amount of covered taxes, which seemed sufficient, is no longer so.
The game-changing compliance event
Decree 45/2025 strengthens the documentation framework for transfer pricing in Hungary beyond simple compliance. Three provisions are essential:
- Benchmarking locally Centralized pan-European studies are only accepted if they demonstrably comply with Hungarian comparability criteria.
- Analyze mandatory DEMPE Detailed documentation of where value is truly created in automotive development and engineering
- Benefit test for intra-group services Management fees are entirely rejected—not simply adjusted—in the absence of proof of actual benefit.
For many Hungarian automotive entities, this creates structural tension. The standard model—limited-risk contract manufacturer, cost-plus base, centralized benchmarking—was designed for a simpler operational reality. Today, many of these entities perform purchasing, quality engineering, process development, and supplier management activities that were not envisioned in their initial intra-group frameworks. Their documentation describes a company from twenty years ago. Their operational reality is significantly more substantial.
Two paths, one country
In 2026, the Hungarian automotive sector will split in two. BMW, BYD, Audi, and Mercedes-Benz are expanding — with sites representing their most advanced production capabilities. For well-documented and capital-intensive operations, Pillar Two mechanisms are manageable, and the regulatory environment remains navigable.
At the same time, the European components sector is contracting through closures rather than restructuring, a dynamic structurally different from previous crises.
Low-capital-intensive Tier 2 suppliers simultaneously face:
- a reduction in SBIE margins
- an increase in labor costs
- a pressure on demand
For this segment, structural headwinds cannot be resolved solely by cost competitiveness.
It is not a single reality. These are two simultaneous dynamics in the same country. Any analysis that claims otherwise does not describe Hungary as it is in 2026.
How Moore supports automotive groups in Central and Eastern Europe
Moore Global combines local expertise in Central and Eastern Europe with a coordinated global network of professional services. For automotive and industrial groups, support focuses on four areas:
- Transfer pricing strategy and documentation DEMPE analysis, preparation of local files compliant with Decree 45/2025, defense during NAV audits
- Pillar Two Modeling Optimization of the SBIE, aggregation of covered taxes, multi-year modeling of exposure up to the inflection points of 2029 and 2033
- Entity Function Evaluation Characterization review when operational reality exceeds initial intra-group frameworks
- CEE Network Coordination integrated support in Hungary, Poland, Slovakia, Romania and beyond
Moore will be present at Portfolio Automotive Industry 2026 in Budapest on March 26th and 27th. Meet our CEE automotive tax team on-site. Learn more about the event and our participation.
