The new transfer pricing reporting obligation in Hungary: timely preparation is essential

The Hungarian tax authority has published Form 2229, on which returns and relevant data reports should be submitted for the 2022 corporate tax, the income tax on energy suppliers and the innovation contribution liabilities. The Form includes the transfer pricing data report introduced by the Ministry for National Economy Decree No. 32/2017 (X. 18.), as amended. In today's newsletter, we summarise the details of the data report.

The reporting obligation should be fulfilled by completing the ATP-01 and ATP-KV forms of the tax return.

The primary purpose of the transfer pricing data report is to simplify the selection for a tax audit by the tax authority. Consequently, an incorrectly prepared transfer pricing data report increases the risk of being flagged for a tax audit.

In addition, it might become even more important for taxpayers to plan in advance, continuously monitor, and control retrospectively the transfer prices they are going to apply or have applied. If the transfer prices applied fall outside the arm's length range, they must be adjusted to the median of the arm's length price range in accordance with the legislation.

The information to be provided is that contained in the local transfer pricing documentation.

It is important to note that it is not always clear which category should be selected in certain points of the data report or which block is required to be filled in.

Therefore, completing the new data report requires more effort and extra time. This is why it is recommended to prepare in advance for it, meaning that the necessary information, analyses and transfer pricing documentation should be available in good time, and the support of a transfer pricing advisor can be indispensable.

Below is a brief outline of the main points to know about the new data report.

   I. Scope of transactions subject to reporting

Full reporting obligation

As a general rule, in line with the transfer pricing documentation, data should be provided for the related party transactions whose consolidated net value in the tax year reached the HUF 100 million threshold.

In addition, there’s full disclosure obligation for transactions whose terms have been specified in the framework of an Advance Pricing Agreement (APAs) - even though there is no transfer pricing documentation obligation for them.

For group corporate taxpayers, only transactions with related parties outside the tax group that reached the threshold should be reported.

Limited reporting obligation

As a general rule, the taxpayer is only required to provide limited information in the case of contracts concluded with private individuals who are not private entrepreneurs (sole traders), cost recharges, and free transfers and receipts of funds.

It is important to note that data on cost recharges will only be required from the tax year 2023 onwards.

Exemption from the reporting obligation

There is no reporting obligation for transactions below the HUF 100 million threshold, stock exchange transactions, or for transactions carried out at the regulatory price, or a specific price set by law.

2. Scope of the reported data

The following information based on local transfer pricing documentation should be provided:

• classification of the transaction into a specific category, taking into account the functional characterisation;
• the TEÁOR (NACE) code most representative of the activity performed in the transaction;
• details of the transaction, such as the details of the related companies involved in the transaction, the net value of the transaction in HUF and the amount of the adjustment to the corporate tax base (if any);
• the name of the transfer pricing method used in the assessment of the arm’s length price pursuant to Section 18 (2) of the CIT Act;
• the profitability indicator used in the transaction, depending on the transfer pricing method applied;
• the arm’s length price or range calculated for the profitability indicator used;
• the value of the profitability indicator used and realised in the transaction, taking into account the corporate income tax base adjustments, if any;
• the accounting standards used by the related party in the calculation of the profitability indicator.

The transfer pricing experts of VGD Hungary are available to assist their clients in the preparation of transfer pricing documentation and to support them in complying with the new reporting obligations.

15. feb, 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.