On July 19, 2022 the Parliament adopted the Act on the establishment of Hungary’s 2023 budget, which also has implications for transfer pricing, since Act LXXXI. of 1996 on corporate income tax and dividend tax (Tao Act) and Act CL. (Art) of 2017 on the taxation system were also amended in it. In this newsletter, we summarize the most important points of the amendment of these regulations.

A new obligation for taxpayers to submit transfer pricing information annually as part of the corporate income tax return is being introduced in Hungary, so businesses must pay more attention to being able to provide the tax authority with data on their transactions with related parties and, presumably, their pricing in time.

The usual standard market (arm’s length) price and the method used to determine it, as well as the facts and circumstances supporting it, until the declaration is submitted, are supplemented by the obligation to provide data to the state tax and customs authorities. Taxpayers subject to the transfer price registration obligation will also be required to provide data in their corporate tax return in connection with the determination of the standard market price. The exact content of the data provision will be regulated by the Minister responsible for tax policy in the amended transfer pricing regulation. The obligation to provide data related to transfer pricing arises for the first time in returns submitted after December 31, 2022. Since this can result in a significant tax payment surplus for many company groups compared to previous tax years, in our view, it may be worthwhile to examine where the currently applied pricing or profit is compared to the normal market range even before the annual accounting close. In practice, this means that the necessary database research should not be conducted afterwards, in the weeks before the submission of the corporate tax return, but much earlier than before, so that the pricing or profit can still be changed in light of the results obtained. In fact, the related parties involved can settle the necessary adjustment – instead of paying a large amount of tax – with a simple contract amendment.

As a result of the amendment to Art., the penalties for missing, incomplete or faulty documentation increases.

According to the amendment to the legislation, instead of two million forints, the default fine could be up to five million forints, and for repeated violations up to ten million forints per registration. In order to increase the dissuasive nature of the default fine, the legislator prescribed a higher rate, which is in line with the tax liability.

All taxpayers will be required to determine the interquartile range, regardless of whether they are involved in the preparation of transfer pricing documentation.

The regulation on the use of the interquartile range is renewed. According to the amendment, the interquartile range must be used if the transfer price methods are applied taking into account the data stored in a public database or that can be verified by the tax authority for the comparable product, service or enterprise. The definition of the interquartile range remains unchanged, i.e. the middle range in which half of the sample elements fall must be used.

The practice is included in the legislation, the transfer price adjustment must be made to the median value instead of the lower quartile, therefore the tax burden of the affected companies may increase.

The amendment introduces new provisions for determining the normal market price. Based on this, if the applied consideration is within the normal market range, there is no room for transfer price adjustment, the consideration is considered to be the normal market price. If the applied consideration is outside the normal market range, then as a general rule, the median must and can only be taken into account as the normal market price, the transfer price adjustment must be made to this point. An exception to this is if the taxpayer proves that a value other than the median within the range best corresponds to the examined transaction, in which case it must be adjusted to this value instead of the median. The provisions defining the amended interquartile rule and the adjustment point, as well as the additional rules to be amended in connection with these changes must be applied for the first time when determining the payable tax for the tax year starting in 2022.

The application fee for Advance Pricing Agreement increases:

The fee for the procedure to determine the normal market price is five million forints in a unilateral procedure, and eight million forints in a bilateral or multilateral procedure. Payment in installments or deferred payment is not permitted.

As part of a technical amendment, two new concepts are added to Tao Act.

Usual market price: the consideration that independent parties would enforce or would enforce among themselves under comparable circumstances.

Usual market range: a set of values ​​consisting of comparable transactions between independent parties or financial data of comparable independent enterprises resulting from the application of the existing methods listed and left unchanged in Section (2) of § 18.

Other changes:

• In order to ensure that the tax authority does not make a finding contrary to the decision establishing the standard market price to be made later, Art. excludes the ordering of an audit against the taxpayer during the procedure for establishing the standard market price. The amendment clarifies that the prohibition applies only to tax audits resulting a period closed by a tax audit. The legislator makes an exception for pre-payment audits, unauthorized tax refunds and tax claim audits to ensure the tax authorities’ decision.

• When applying the standard market price principle, the small enterprise (KIVA) taxpayer must take into account the interquartile range and the determination of the adjustment point, which provisions will be applied for the first time for the 2022 tax year.

• Taxpayers who are not obligated to prepare transfer pricing documentation can now request a standard market price determination in the case of a complex, complicated transaction.

If you have any further questions regarding the above, the Grant Thornton transfer pricing team is ready to help!

This newsletter was written based on the information available up to the date of its publication and for general information purposes only, so it does not in any way qualify as personalized tax advice and does not replace it.