In this newsletter, we would like to draw your attention to the most important new transfer pricing rules. The new rules have been introduced by the summer tax law amendments, and they will already apply for the tax year starting in 2022.

New reporting obligations
Among the changes, it should be highlighted that companies subject to transfer pricing documentation obligation will also be obliged to provide information in connection with the determination of the arm's length price in their corporate income tax returns in addition to preparing transfer pricing documentation. This means that those taxpayers which apply the calendar year as the tax year will have to provide the data specified in the Transfer Pricing Decree by 31 May of the year following the tax year.

The decree containing the detailed rules has not been published yet, but it can be already stated that it will be of particular importance to prepare the transfer pricing documentation for FY2022 before 31 May 2023 in order that it could serve as a basis for the above-mentioned data reporting obligation.

Obligation to apply the interquartile range
In case if the arm's length price or price range is determined by using a database (e.g. Amadeus) or other data accessible by the tax authority (e.g. internal comparable), the use of the interquartile range will be mandatory. Given that there have been cases in the past where the full market price range, i.e. the whole range between the minimum and the maximum value, was acceptable for determining the arm's length price, the introduction of this new rule might make the analysis of the transfer prices more difficult and might lead to tax base adjustments.

Adjustment of the prices applied - Application of the median value
If the price applied by the parties falls within the arm's length price range, no transfer pricing adjustment will be required, and the price applied will be deemed to be arm's length. If, however, the transfer price applied differs from the arm's length price range, the tax base adjustment should, as a general rule, be made to the median value. An exception to this new rule is if the taxpayer could prove that a value within the arm's length range other than the median would reflect the transaction under consideration better, in which case that value should be considered as the arm's length price instead of the median.

Increase of default penalties
The maximum amount of the default penalty levied for the failure to comply with the transfer pricing documentation obligation will increase to HUF 5 million, and the maximum amount of penalties for repeated infringement will increase to HUF 10 million, from HUF 2 million and HUF 4 million respectively.

It can therefore be seen that the transfer pricing rules have been significantly changed and tightened, which foresees that transfer pricing will continue to be a priority area for tax authority audits in the coming years (as confirmed by the 2022 audit plan issued by the Hungarian Tax Authority). As a result, it will become increasingly important to prepare the transfer pricing reports in a fast, accurate, reliable and professionally excellent manner.

The tax experts of Moore Hungary Tax Advisory Ltd. would be pleased to assist you in preparing for the new obligations, too; please do not hesitate to contact us.