Changes in Hungarian transfer pricing rules and 
new reporting obligations

With effect from 31 December 2022, the Hungarian transfer pricing rules previously in force have been amended or supplemented in several respects. In this newsletter, we briefly review these changes and provide details on the new transfer pricing disclosure requirements.

On 28 December 2022, Ministry of Finance Decree 27/2022 (XII. 28.) amending Ministry of Economy Decree 32/2017 (X. 18.) on the Obligation to Keep Records in Connection with the Determination of the Arm’s Length Price (hereinafter: the "NGM Decree") was promulgated.

Taxpayers should apply most of the changes and amendments for the tax year 2022. However, some provisions are only applicable from the tax year starting in 2023, so they affect first the transfer pricing documents to be prepared in 2024.

I. Transfer pricing changes applicable from the tax year 2022

1.  Increased threshold for documentation obligation

The exemption threshold has been increased from HUF 50 million to HUF 100 million as of the tax year 2022, so only transactions exceeding HUF 100 million are subject to transfer pricing documentation.  As a result, the number of transactions requiring transfer pricing documentation may be reduced, simplifying taxpayers’ administration.

2.  Additional definitions

The definitions included in the NGM Decree have been extended.
Among others, the definition of functional analysis has been clarified, with the additional list of functions that need to be presented to fulfil the documentation obligation, taking into account the activities of the taxpayer and the parties involved in the transactions.

3.  New data reporting obligation

One of the most significant changes to the transfer pricing legislation is the introduction of a new reporting obligation. 
To comply with the reporting obligation, taxpayers are required to submit a variety of information related to the transfer pricing documentation to the Hungarian Tax Authorities as included in their corporate income tax return form.

In the framework of the data reporting obligation the following information should be included per transaction under review or per consolidated transaction:

• the type of transaction;
• typical NACE code;
• the name and tax number of the related companies involved in the transaction;
• the net value of the transaction in HUF;
• the amount of the corporate income tax base adjustment, if any;
• the arm's length pricing method applied;
• type of pricing;
• accounting standards applied;
• the arm’s length price or range of profitability indicators;
• applied price.

In line with the transfer pricing documentation obligation, there is no reporting obligation for transactions below HUF 100 million, stock exchange transactions or transactions carried out at regulatory price or a price determined by law.

However, the taxpayer should provide reduced information for the contracts concluded with private individuals who are not private entrepreneurs, cost recharges and free transfers and receipts of funds.

Existing Advance Pricing Agreements (APAs) are subject to full reporting obligations.

II.  Transfer pricing changes applicable from the tax year 2023

1.  Number of documents

Under the previous regulation, the transfer pricing documentation consisted of a Master File and a Local file. From the tax year 2023, the Local File is divided into two parts: the common part at the taxpayer’s level and the transaction-level part.

2.  Consolidation of transactions

In the context of the amendment of the NGM Decree, the criteria for consolidating of transactions have been clarified. In addition, procurement should not be consolidated with the sale of products manufactured from purchased materials, nor can a transaction involving expenses be consolidated with a transaction involving primarily income.

3.  Presentation of financial data

The NGM Decree has already made it mandatory to present how the financial data used can be linked to the data included in the taxpayer's financial statements.
The regulation has been amended by adding that in the framework of the presentation of the connection between the financial data used and the financial statements, general ledger accounts, cost centres, cost units, profit centres or job numbers are requested to be shown. 
In addition, if cost allocation has been established in connection with the transaction value, information about the cost allocation method and the allocation keys applied should be provided.

17 January, 2023

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Should you have any questions regarding this newsletter,
the tax experts of VGD Hungary will be pleased to assist you.
This newsletter provides general information and does not constitute tax advice