As it is already known, the OECD set up a 15-point action plan for base erosion and against artificial profit shifting in 2015[1] [last year's tax liability was described in detail, HERE]. BEPS Action 13 also requires a yearly reporting obligation to the transfer pricing documentation for the parent company of the affected multinational entity [hereinafter: MNE], and in some cases for its affiliated companies. This reporting obligation is referred to as the country-by-country reporting [hereinafter: CbC].

As for Hungary, it is a kind of fortune that the actual performer of the data supply is the parent company, or with other words the principal of CbC, since we can see that our small country has a small number of MNE’s parent companies of this size[2]. At the same time, the main obligation of the CbC reporting may be delegated by the parent to a designated group member, and in this way, the parent company will be replaced by the group member and it shall report to the authority of its own residence. It is also known that between the main obligation and the detailed CbC data reporting, the group members of the MNE shall indicate to their own tax authorities that whom, and from which country’s competent tax authorities can be expected to share CbC data with their own tax authority if they need it. This additional obligation meant the most tasks for the group members of the Hungarian MNEs last year. Most of them were relieved to report their parent company and its EU-based tax residence on the 17T201 forms, thereby closing the CbC issue for them.

At the same time, several Hungarian companies were also worried about the announcement of their parent company as a CbC reporting obliged, since its parent company has a tax residence in a third country with which Hungary does not have any tax agreement. In this case, the Hungarian Tax Authority would have waited for the CbC report to be shared, which could not be done due to the lack of formal agreement. Such third countries include also the US.

The above also means that in the case of a Hungarian Ltd with a parent company in the USA, if the parent company does not have a subsidiary resident in the European Union who actually performs the CbC reporting, then the Hungarian subsidiary will have to provide this data, to fulfill the main obligation towards the Hungarian Tax Authority.

Fortunately, however, it appears that it has been published in Hungarian Official Gazette No. 137, Government Decree 1439/2018. (IX. 11) resolves this problem and Hungary establishes an agreement on the exchange of CbCs with the US also. Even though the tasks have been selected only by the recently published Government Decree, but this step already foretells the intention that was missing or was not fully publicized.

In the next step, the US party will have to formally approve the agreement, and in this case, US-owned Hungarian subsidiaries have to report only the US parent company to the Hungarian Tax Authority (of course, if the group did not decide otherwise) than the main obliged of CbC reporting and they are exempted from further tasks.

Adoption from the American side will be reported in another report. On the website  of the US Tax Authority, you can read more about CbC reporting and its current situation of the above described process.

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