Mandatory country-by-country reporting – Hungary joins the ranks

Mandatory country-by-country reporting – Hungary joins the ranks

In our January 2017 newsletter we revealed that according to information from the Ministry for National Economy, Hungary would be joining the OECD convention on information exchange in accordance with the BEPS (base erosion and profit shifting) action plan, thus rendering country-by-country reporting mandatory. A couple of months have passed, and the legislation was adopted on 15 May: it incorporates the provisions in point 13 of the BEPS and the rules of Council Directive 2016/881/EU into Hungarian law.

What is the purpose of Action 13 of the BEPS Action Plan?

In the case of multinational companies, the action plan is designed to mitigate aggressive tax planning and tax evasion. To this end, in addition to the preparation of transfer pricing records (master file, local file), it also requires country-by-country (CbC) reporting.

What data is reported, and to whom?

It is essentially the group member qualifying as the ultimate parent company that is responsible for the country-by-country reporting (data provision). However, a multinational group is exempted from the country-by-country reporting obligation if its consolidated revenues did not reach EUR 750 million in the financial year preceding the financial year when the data was provided.

A country-by-country report should contain, among others, the amount and currency of revenues, pre-tax profit, income tax paid, income tax payable, registered capital, retained earnings, headcount, and many other pieces of information in respect of every state or region where the group performs economic activities; based on this information, the competent tax authorities can survey the risks related to assessing market prices, reducing the tax base and profit shifting.

In which cases and by when should Hungarian group members submit their country-by-country reports? 

As a general rule, Hungarian companies have to submit a country-by-country report if they qualify as an ultimate parent company. The ultimate parent company of the multinational group (Hungarian resident) and the organisation designated as the resident parent company in Hungary first have to comply with their reporting obligation within 12 months of the last day of the financial year starting on or after 1 January 2016 for which data is provided.

In certain cases, although the Hungarian resident group member does not qualify as an ultimate parent company, it will still be the one subject to country-by-country reporting. These are:

  • the ultimate parent company is not subject to country-by-country reporting in the state where it is resident, or
  • the state of the ultimate parent company is a party to a valid international agreement to which Hungary is also a party, but there is no valid agreement recognised by the competent authorities for country-by-country reporting, or
  • there is a systemic error in the state of the ultimate parent company and the national tax authority notified the Hungarian company of this.
What other obligations does a group member not qualifying as an ultimate parent company have, and by when should these be fulfilled?

Apart from the parent company meeting its country-by-country reporting obligation, the Hungarian resident group members have a data reporting obligation towards the relevant tax authority, ensuring that the latter becomes aware of the ultimate parent company, designated parent company or group member status of the Hungarian resident group member in the multinational group, or the lack thereof, and the identity of the organisation obliged to provide data in respect of the country-by-country report (besides reporting the affected companies’ names, registered offices, tax numbers and financial years).

The data must first be reported to the tax authority within 12 months of the last day of the financial year starting on or after 1 January 2016 for which data is provided. This essentially means that the Hungarian group member of the parent company subject to country-by-country reporting has to comply with its data reporting obligation towards the NAV by 31 December 2017 at the earliest.


Please note that failure to comply with either the country-by-country reporting or the obligation to provide data, and in the case of delayed or defective execution, the tax authority may levy a default penalty of up to HUF 20 million (approx. EUR 64,000) on the party with the reporting or data provision obligation, so it is really important to comply with the above obligations on time and with the right data.



BEPS – Information is power: CbCR for protecting tax revenues

Transfer pricing documentation

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