July 21, 2022
New Hungarian transfer pricing rules impose additional reporting requirements and require adjustments to the median
The new law, effective for the current financial year, introduces a significant additional reporting obligation for intercompany transactions and requires transfer pricing adjustments to be made to the median.
The new rules require taxpayers to significantly alter compliance processes.
Since the bill affects the current financial year, companies should timely begin to prepare and implement adjustments.
On 19 July 2022, the Hungarian Parliament passed a bill that sets out important changes to the transfer pricing (TP) rules. Specifically the bill:
Summary of the new legislation
Companies subject to TP documentation requirements will have a new reporting obligation. They will be required to provide transaction-level details on their intercompany dealings in their annual CIT returns. The exact content of the reporting obligation is not included in the bill but will be determined by an upcoming Ministry of Finance Decree. It is expected that the transactional volume, profit and loss impact and TP method retained to be part of the new data reporting obligation.
Implications and actions required
In the past, it was not necessary to submit the documentation and deadlines were not strictly enforced. A significant portion of companies prepared the documentation after filing their CIT return. However, since the TP method will need to be disclosed in the CIT return for each intercompany transaction, going forward this will be a riskier option.
Centrally prepared benchmarks also will pose a significant risk going forward. The aim of the HTA will be to determine whether the return falls outside the interquartile range of the benchmark prepared based on their specific requirements. If it does, the adjustment will be made to the median instead of the closest quartile which may result in a significant increase in volume and thus the tax impact of adjustments.
The new rules require taxpayers to significantly alter their CIT and TP compliance processes. Since the bill affects the current financial year, companies should start preparing and implementing adjustments as soon as possible. Naturally, the Decree with additional rules will need to be monitored; however, taxpayers should start their review and preparation without delay.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Consulting Ltd, Budapest