As we indicated in our Newsletter published in July, the transfer pricing related obligations in the Hungarian legislation applicable as of 2022 have been significantly modified. These changes are including but not limited to the introduction of a new transfer price data reporting obligation, pursuant to which the taxpayers subject to transfer pricing documentation preparation obligation will also be required to provide transfer prices related data in their annual corporate income tax return. The exact content of the report was not specified in the CIT Act, but it will be determined separately in the Decree no. 32/2017. of the Ministry for National Economy (hereinafter ‘MNE Decree’). However, the corresponding modification of the MNE Decree has not been published yet. Therefore, our expectations regarding these changes are based on the information available from professional consultations, highlighting that the exact final content of the data reporting obligation might be subject to significant changes. Nevertheless, meeting the data reporting obligation might require due preparation from the taxpayers that in our opinion makes it necessary to provide the below preliminary summary.
Based on the currently available information, the subject of the data reporting will be the intercompany transactions reaching or exceeding the transaction amount of HUF 100 million without VAT at arm’s length price. When calculating the transactional amount, as usual, the potential consolidation of the intercompany transactions is also to be considered.
In the data reporting basically such information shall be shown which are to be disclosed in the transfer pricing local files as well. Consequently, at least theoretically, no significant additional administrative burden should arise at the taxpayers.
The most important elements of the data reporting shall be (including but not limited to) as follows:
- the short (and standardized) name of the intercompany transaction as well as the yearly actual transaction amount without VAT per contracting party together with the accurate identification of these contracting parties;
- transfer pricing method applied in relation to the intercompany transaction;
- arm’s length price or range resulting from the analysis / benchmarking analysis;
- actually applied transfer price / profit level indicator in the intercompany transaction – which already reflects a transfer pricing (tax base) adjustment (if necessary) – depending on the method applied and on the conditions and nature of the intercompany transaction.
The data to be reported will likely be used by the Tax Authority for risk assessment and audit selection purposes. Additional intention of the legislators by introducing the obligation is to encourage the taxpayers’ compliance and diligence in relation to preparation of transfer pricing documentation.
In light of the above our conclusion is that to comply with the transfer pricing data reporting obligation, the preparation of the transfer pricing local file and the corresponding analyses / benchmarking studies will highly likely be required.
We plan to share more details regarding the above mentioned changes and practical recommendations for the preparation within the framework of two separate online webinars, expectedly on November 24th and on December 1st.