Transfer pricing reporting obligation
One of the key points of the amendment is that, starting from 2023, companies will be subject to a new obligation. This is because the new transfer pricing decree provides that taxpayers required to prepare transfer pricing reports will need to declare information on the determination of the arm's length price in their corporate income tax returns. The details of the transfer pricing information to be provided in corporate income tax returns are included in the recently published Decree No. 27/2022. (XII. 28.) PM, and information is also available in our blog on the transfer pricing reporting obligation.
Although taxpayers still won't be required to file transfer pricing reports themselves, ensuring compliance with the reporting obligation will rely heavily on the transfer pricing reports prepared as all of their relevant elements will need to be included in corporate income tax returns. As a result, having transfer pricing reports available in a timely manner will be essential.
It is important to note that taxpayers whose financial year ended on 31 December 2022 will already be required to comply with the above reporting obligation in their corporate income tax returns for 2022 (no later than 31 May 2023).
Deadline for the preparation of transfer pricing reports
Even until now, transfer pricing compliance has not been something to be left to the last minute, as the preparation of a well-designed and legally compliant report alone takes a considerable amount of time, but compiling a report is far from being the only task involved. Preparing transfer pricing analyses, reviewing the pricing approach used during the year and making the necessary adjustments have always been a part of the year-end close.
Since the majority of taxpayers whose tax year is identical to the calendar year close their books as early as in January, and to allow entities to carry out the necessary price adjustments, having at least the analyses and benchmark studies relating to the determination of the arm's length price available at the time of close (if not the entire report) has always been critical.
This means that meeting the deadline for preparing transfer pricing reports has already been enough of a challenge for taxpayers, and with the introduction of the new reporting obligation, the to-do list just became longer.
In order to be ready in time and avoid a default penalty, the amount of which increased by 150% starting from 2022, entities are advised to get on with these tasks as soon as possible and to enlist the help of an expert if needed.
Transfer pricing threshold doubled
Besides the additional obligation, the fact that the threshold for preparing reports has increased from HUF 50 million to HUF 100 million will provide some relief as fewer transactions might be subject to the reporting obligation, given that transactions where the arm's length price is between HUF 50 million and HUF 100 million could now be excluded.
ANY QUESTIONS? CONTACT OUR EXPERTS
However, we must underline that it is the arm's length price that must be taken into account when assessing the threshold and not the invoiced amount, and these may differ. Also, the tax base adjustment obligation will apply to transactions below HUF 100 million as well, regardless of whether a transfer pricing report has been prepared.
