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Hungary: transfer pricing

Alessandro PasutTransfer pricing: after the modification of the Accounting Act in June 2013 followed by its amendment effective since 1 January 2014, related party entities may perform transfer pricing adjustments in a more effective way. The subsequently accounted difference of the arm’s lengths price and the applied price related to sold/purchased products and services during a given period may be accounted for by the related parties as follows.

The difference of prices can be accounted for as part of the historical value of the asset in case of asset purchase; as amendment to costs/expenditures accounted for in case of purchases of services; as part of net sales revenue in case of sales. This practice can be applied even without issuing correction invoices instead of performing corporate income tax base modifications.
As of the tax year 2013, the new rules set out the application of such year-end adjustment corrections instead of the other methods previously used frequently (e.g. other/extraordinary income/expenditure) that often gave rise to significant risks.


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Hungary: Transfer pricing

The Ministry for National Economy has issued a decree introducing several amendments to transfer pricing reporting obligations which have become effective on 1 January 2012. Under the new rules, taxpayers can apply the amendments when complying with reporting obligations related to tax obligations of the fiscal year 2011, provided the deadline for submitting reports is on or after 1 January 2012.

Transactions concluded between Hungarian resident taxpayers and the related companies of their branch office located in a foreign country with which Hungary has a double tax treaty are exempt from the reporting requirement. This rule applies if the income from the branch office that is subject to taxation abroad is exempted from tax in Hungary under the treaty. It also applies to transactions concluded between related parties for which the state Tax Authority established the arm’s-length price by way of resolution during the validity period of the resolution.

Exemption from the reporting obligation is also granted for the purchase of third-party goods and services that are not related to the company’s principal business activity, provided that the costs are recharged to a related company without a surcharge, for cash subsidies and for transactions with a value of less than HUF 50 million, if certain conditions are met.

The amendments introduced by the decree allow simplified reporting for low value adding intra-group services subject to specific conditions (the value of transactions may not exceed 150 million forints in the tax year under review, 5% of the service providers’ annual net revenues and 10% of the recipient’s annual operating costs and expenses in the tax year). These requirements must always be examined from the perspective of the party that prepared the documentation.

Related-party transactions qualify as low value adding intra-group services if they have a low risk and routine nature, are not related to the company’s principal business activity, do not exceed the above mentioned value threshold and the recipient is provided with economic or commercial value.

Sanctions for defaulting on transfer price reporting obligations will be heavier from 2012. Fines for repeated default may reach a maximum HUF 4 million per report, while repeated default concerning the same report may cost up to a maximum of HUF 16 million.