Hungary has implemented the OECD recommendations for BEPS Action 13 on Transfer Pricing Documentation and Country-by-Country Reporting (CbCR) introducing stricter requirements for companies to comply with.
The CbCR rules which were introduced in May 2017 and effective for FY16 information are fully in line with the OECD’s minimum standards, the obligation applies for multinational group of enterprises with a yearly consolidated turnover of at least EUR 750m ($ 923.3m).
Companies found non-compliant face a default penalty of HUF 20m ($ 78,000), which according to Niveus Consulting Group (DFK International) is the highest of all local tax related default penalties in Hungary.
The new transfer pricing documentation requirements were introduced in October 2017 and are effective as of FY18.
“[They] prescribe a mandatory application of the Masterfile + Local File concept for all Hungarian entities obliged for documentation (medium and large size companies) even if the related parties have no multinational presence or cross-border transactions,” Niveus Consulting Group said in a statement. “The content requirements have been strongly extended compared to the previous regulation which will dramatically increase the administrative burden of the taxpayers concerned, thus they definitely have to rethink and likely to rework their previously developed documentation practice.
According to the firm this will result in an increased attention on transfer pricing by the Hungarian National Tax and Customs Administration which may result in more comprehensive audits and growing likelihood of non-compliance penalties.
Niveus Consulting Group’s Transfer Pricing Partner, Janos Giraszin said: “Transfer pricing has priority during tax investigations for several years and thanks to the new rules, an even stronger emphasis will surely be put on this topic. From now on, being well-prepared is a must for all taxpayers.”
“The rules for Advance Pricing Arrangements (APA) have been also modified, resulting a more favourable system for taxpayers,” Niveus Consulting Group’s Tax Partner, Lajos Bagdi said. “It is highly recommended to consider the possibility of obtaining an APA since it is a perfect tool to eliminate transfer pricing risks and furthermore, transactions covered by an APA are exempted from documentation obligation.”