Another transfer pricing deadline is coming

The so-called CbC (Country-by-Country) reporting obligations should be fulfilled by 31 December 2019 to the Hungarian Tax Authority. In the case of non-compliance with the CbC reporting or data sending obligation, the maximum default penalty can be up to HUF 20 million!

In recent years, the OECD has been rethinking the transfer pricing documentation requirements of multinational companies within the framework of BEPS (Base Erosion and Profit Shifting). Under the new regulation, it is necessary to examine, on the one hand, whether a company group is required to submit a CbC report to its competent tax authority. On the other hand, the transfer pricing documentation for tax years beginning in 2018 consists of two kind of elements, the Master File and the Local Files. The third pillar of transfer pricing regulation is the CbC reporting obligation.

Who is required to submit a CbC report?

Those multinational company groups, that are operating in at least two countries and whose consolidated revenue exceeds EUR 750 million (approx. HUF 241 billion) in the tax year (in this case tax year 2018) preceding the tax year under investigation (i.e. tax year 2019).

Given that this is a fairly high revenue threshold, the vast majority of the Hungarian company group member taxpayers are not obligated to prepare a CbC report. Nonetheless, if the consolidated revenue of your company group exceeds EUR 750 million, please contact our experts.

Who should prepare the CbC report if the company group is required to submit a CbC report?

If a company group is obliged to prepare a CbC report, the ultimate parent company is normally required to file the CbC report in the country of its tax residence. However, the ultimate parent company is entitled to decide to assign this obligation to one of its related companies. Important rule that if the ultimate parent company is located outside the borders of the European Union and Hungary does not have an automatic information exchange agreement with its home country, then either the Hungarian company or any other group member – that located in the European Union – must comply with the CbC reporting obligation.

However, we would like to draw your attention to the fact that a Hungarian company must provide information to the Hungarian Tax Authority even if another group member (i.e. not the Hungarian taxpayer) is required to submit the CbC report.

In these cases, the so-called form 19T201T is required to be completed and submitted to the Hungarian Tax Authority until 31 December 2019. In this form the identification of the group member who fulfils the CbC reporting obligations is requested.

What sanctions can be imposed on a Hungarian taxpayer in case of non-compliance with the CbC reporting or data sending obligation?

The maximum default penalty for the failure is HUF 20 million, so it is worth investigating carefully whether the Hungarian taxpayer is subject to any reporting or data sending obligation.

If you have any questions regarding the reporting and data sending requirements for the CbC report or the completion of form 19T201T, please contact our transfer pricing experts.