An analysis by Leitner Leitner
Businesses are being urged to prepare for new transfer pricing rules in Hungary with significant changes being introduced to reporting liabilities. Our Hungarian member firm, Leitner Leitner, reports on the new legislation and how and when companies should comply.
Read the full article below:
How to comply effectively for the new transfer pricing obligations? – News from Hungary
No doubt 2023 will be a great challenge again for the multinational companies, not only because of the latest rules’ adjustments of transfer pricing but the introducing of GloBe. At least the new transfer pricing obligations are known in detail – moreover effective – thus the affected companies must start applying them asap.
Although transfer pricing has already been a focus point to all comprehensive tax audits in Hungary, significant legislative changes were introduced last year. With the new transfer pricing data reporting in the corporate income tax declarations, the authority will not only be able to select risky taxpayers but be able to carry out audits much more efficiently than before.
This provision may mean an invisible extension of the audit for the tax authority, since the affiliated companies may already have a lot of important information in the risk assessment phase, even before an officially announced audit begins.
Although, transfer pricing documents do not have to be submitted automatically to the tax authorities but theoretically they had to be prepared by the submission date of the corporate income tax return. Furthermore, from now on affiliated companies must provide data about their related party transactions and transfer pricing practice as part of the corporate income tax return already by FY2022.
Affiliated companies must provide data within the CIT reporting period, which is 5-months from the financial year’s end, i.e. by the end of May 2023 for financial year similar to the calendar year.
As part of such transfer pricing reporting, data are required about every related transaction:
Therefore, businesses that have not paid enough attention to transfer pricing yet must identify each related party transactions of 2022, should know their details and their arm’s length price, the exact result of the reconciliation. Determining all these is certainly not easy. There is also an increasing expectation that the transfer pricing transactions should be supported by segmented accounting data specific to each transaction.
In addition, the range of transactions affected by the data reporting is wider than those subject to transfer pricing documentations, as certain exempted transactions will also have to be reported, such as the ones covered by an APA decision, contracts with a private individual not being a sole proprietor, intra-group cost recharges, and free transfers of funds. So, it is recommended to ask for help of an experienced transfer pricing specialist as early as it is possible to ensure enough time for highest quality support!
The increasing penalties will also put more pressure on businesses to prepare the transfer pricing reports within the deadline, by the corporate income tax return. The fine for omission of compiling a transfer pricing document has more than doubled to HUF 5 million (appr. EUR 12,500) per transaction, and in the case of repeated infringements to HUF 10 million appr. EUR 25,000).
In addition to the tightening presented above, a third new rule will also complicate the life of the multinational companies in the future. The obligation of the “interquartile range” will be compulsively applied during the analysis based on the database, already in the tax year starting in 2022. If the consideration applied in the examined related transaction is outside the arm’s length range, the transfer pricing adjustment must be made to the “median”.
These new requirements are opening up even more accurate and rigorous transfer pricing controls. As a result, many more businesses could face increased default penalties and corporate tax base adjustments in the coming years.
These also give a higher motivation to bring the transfer pricing of the company under more security with applying for an APA to the most important or complex transactions.
Leitner Leitner is one of the most influential tax consulting companies in Central Europe, with a worldwide coverage through the Taxand network. You may rely on our specialized full-scope transfer pricing service-package: documentations, benchmark studies, database searches, representation in legal disputes, MAP and APA processes.
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