In the summer of 2022, it was already foreseeable that legislators were planning significant changes to transfer pricing documentation and, in this context, to the upcoming corporate tax returns.

As a result of the changes in the tax law, the amendment of Decree 32/2017 of the Ministry for National Economy of Hungary was also due, the draft of which was published on 9 December 2022.

The most sensitive part of the amendment of the above-mentioned Decree is the obligation to provide information on transactions with affiliated companies, which taxpayers will have to comply with in their corporate tax returns filed after 31 December 2022.

Data provision covers the following areas:

• the name of each transaction, the most typical TEÁOR (Hungarian NACE) codes in which the transaction can be classified, the classification of the type of transaction as defined in the above Decree
• the value of the transaction or deal
• the transfer pricing method used (resale price method, cost plus method, transactional profit method etc.)
• presentation of the profits from transactions (using various indicators)
• the accounting standard used (Hungarian Accounting Act IFRS, USGAAP etc.)
• the range of arm’s length price specific to the transaction

Clarifications have also been introduced in the Decree:

• it is now necessary to show in the local documents the specific cost centers/general ledger numbers where the transactions tested are recorded.
• The rules and conditions for aggregating transactions are also tightened. Purchases will not be aggregated with sales of products manufactured from purchased materials, nor will transactions involving expenses be aggregated with transactions involving primarily revenue.

It is not a new change that taxpayers must prepare transfer pricing documentation by the time they file their corporate tax return. The change is that the tax authority can now check it by this reporting obligation. To provide this information, it is now essential that transfer pricing documentation should be available.

The legislators have increased the amount of tax penalties that can be imposed, no doubt as a motivation. Thus, instead of the previous HUF 2 million, they can now fine those who fail to comply with their legal obligations up to HUF 5 million per transaction. If the taxpayer does not take this seriously enough, in the case of repeated infringements, the fine can reach HUF 10 million per transaction instead of the previous HUF 4 million.

However, the good news is that the obligation to prepare transfer pricing documentation will increase from HUF 50 million to HUF 100 million.

All these changes will require taxpayers to do a lot of data collection, administration and, where necessary, supplementing their documentation, so it is worth starting the preparation as soon as possible.