Hungary, as an active member of the European Union and the Organisation for Economic Co-operation and Development (OECD), has adopted the OECD’s Country-by-Country Reporting (CbCR) framework under BEPS (Base Erosion and Profit Shifting) Action 13. This guide provides Chief Financial Officers (CFOs) and financial executives in Hungary with an overview of CbCR requirements, detailing how multinational enterprises (MNEs) are affected, the reporting process, penalties for non-compliance, and additional resources to ensure compliance with the law.

Applicability of CbCR in Hungary

Criteria for Reporting:

• CbCR obligations in Hungary apply to multinational enterprise (MNE) groups with consolidated revenue of €750 million or more in the previous fiscal year.
• The responsibility for filing the CbC report lies with the ultimate parent entity if it is tax resident in Hungary.
• If the ultimate parent is not located in a country that requires CbCR or does not exchange the report, a surrogate parent entity based in Hungary may be required to submit the report on behalf of the group.

Relevant Legislation:

• Hungary implemented the CbCR regulations under Act XXXVII of 2013 on International Administrative Cooperation in the Field of Taxes and Other Public Charges and subsequent amendments aligned with the EU’s Council Directive (EU) 2016/881.
• Additional details can be accessed through the Hungarian Ministry of Finance and National Tax and Customs Administration (NAV) websites.

Reporting Requirements

Information to be Reported:

• The CbC report must contain key financial data for each jurisdiction in which the MNE operates, such as:
  • Revenues
  • Profit (or loss) before tax
  • Income tax paid and accrued
  • Capital
  • Accumulated earnings
  • Number of employees
  • Tangible assets other than cash or cash equivalents
• The report must also include a list of all constituent entities in the MNE group, specifying the jurisdiction of tax residence and the main business activities for each entity.

Form and Submission:

• The CbC report must be submitted electronically in XML format, following the standard OECD template.
• Filing is done through the Hungarian National Tax and Customs Administration (NAV) online portal.
  • Detailed submission instructions and formats can be found on the NAV website.

Filing Deadlines

• The CbC report must be submitted within 12 months after the end of the MNE’s fiscal year. For example, for a fiscal year ending on 31 December 2023, the CbC report must be filed by 31 December 2024.
• MNEs in Hungary that are not the ultimate parent entity must notify the tax authorities about which entity will file the report and in which jurisdiction it will be submitted. This notification must be made by the last day of the reporting fiscal year.

Penalties for Non-Compliance

Penalties:

• Failure to comply with Hungary’s CbCR obligations can lead to significant penalties:
  • HUF 20 million (approximately €50,000) for failing to submit the CbC report, submitting it inaccurately, or providing incomplete information.
  • Repeated offences can lead to even higher fines.
• Non-compliance can also result in increased scrutiny from the tax authorities and potential audits.

Defences:

• Companies may avoid penalties if they can demonstrate that the failure to comply was due to reasonable cause, such as technical difficulties or exceptional circumstances. However, this is assessed on a case-by-case basis.

Confidentiality and Use of Information

Data Protection:

• Hungary adheres to the OECD’s guidelines on data confidentiality and security. The information contained in the CbC reports is shared only with tax authorities in countries that have entered into competent authority agreements with Hungary.
• The data collected is used for assessing transfer pricing risks, identifying BEPS risks, and improving transparency, but it is not made available to the public.

Additional Resources

• More details on Hungary’s CbCR obligations can be found on the Hungarian National Tax and Customs Administration (NAV) website.

Conclusion

Hungary’s adoption of the CbCR framework is in line with international efforts to increase tax transparency and combat base erosion and profit shifting. MNEs that meet the revenue threshold must ensure that they fully comply with the reporting obligations by submitting accurate and timely CbC reports. Failure to do so can lead to significant penalties. It is essential for MNEs to work closely with local tax advisors and ensure they have the systems in place to meet these requirements effectively.