The draft law no. T/3360. on the announcement of the agreement between the Government of Hungary and the Government of the United States of America with respect to the exchange of country-by-country reports (CbC Reports) has been published on the website of the Parliament.
From a technical point of view, the draft law does not contain any specifics with respect to the exchange of information. However, it reflects a strong intention that the Hungarian and US tax authorities shall agree on the exchange of data with respect to CbC Reports. For the time being, we have no practical information on the timing and the content of this agreement.
CBCR obligation for a designated company resident in the United States of America
Under the current rules, if Hungarian tax authority does not have a valid agreement with the competent authority of the state in which the reporting entity is resident for tax purposes within 12 months of the last day of the reporting period, the Hungarian group entity is obliged to submit CbC Report as well. As a transitional rule for the financial year beginning in 2016, these Hungarian group entities were exempted from submitting the CbC Reports but for 2017, this exemption is not available.
Therefore, if a US tax resident entity is liable to prepare and submit the CbC Report for the group for 2017, as a general rule, the Hungarian entity will have to submit the report to the Hungarian tax authority due to the lack of agreement between the authorities on the exchange of information. The deadline for submission of the report is 31 December 2018 for calendar year taxpayers.
The draft law does not change the reporting obligation
The draft law enters an agreement into force which has been concluded between the governments of the two countries and not between the competent authorities.
The draft law reflects the intention that the competent authorities (in Hungary the NAV, and in the USA the IRS) shall enter into an agreement regarding
- the scope of the exchange of CbC Reports,
- the time and manner of the exchange of CbC Reports
- collaboration on transmission and errors,
- confidentiality, data safeguards, and appropriate use with respect to CbC Reports
- consultations with respect to CbC Reports, and
- modifications to, and term of, the arrangement.
The agreement covered by the draft law will enter into force on the date of the written notification of the Government of Hungary and the Government of the USA. The draft law explicitly states that exchanging information cannot commence until the agreement between the competent authorities enters into force.
Thus, the draft law will not change the current situation for the time being and if a US company was assigned within the group to fulfil the reporting obligation for the financial year 2017, the Hungarian member company will also have reporting obligation.
As there is no information available on a potential agreement between the Hungarian and US tax authorities regarding the exchange of information, the Hungarian companies concerned, should prepare to submit the CbC Reports to the Hungarian tax authority for the financial year 2017. We recommend investigating whether other exemption for this case exists, and for example, other company could fulfil the reporting obligation.