It was 2003 when the first decree of the Ministry of Finance was issued that summarised Hungarian regulations on transfer pricing documentation based on authorisation granted in the Act on Corporate Tax. There have been several modifications until 2017, and there will certainly be more under the aegis of the BEPS.
At the outset
As it was fourteen years ago, the Hungarian regulation required documentation for almost every transaction with a related company. Under the decree, in addition to the full documentation it was also possible to prepare simplified transfer pricing documentation for low-value transactions. Taxpayers affected in Hungary had to prepare the transfer pricing documentation by the submission date for their corporate tax returns at the latest, but it did not have to be submitted to the tax authority, it only had to be made available for the tax inspectors in the event of an inspection. The HUF 50 million threshold fulfilled an important role from the beginning in defining the documentation obligation.
The mandatory content of the full transfer pricing documentation did not really change over the years; the most important parts are the description of related parties, related transactions and the related market along with a functional analysis and the depiction of comparable transactions.
The simplified transfer pricing documentation is a short administrative record, it does not substantively review the relationship between the price applied among the related companies and the arm’s length price.
Major changes over the years
MoF Decree No. 18/2003 developing the initial regulation was in force until 2009, with only a few modifications made. The new MoF Decree No. 22/2009 was issued in Hungary in 2009, and it redefined the rules for preparing transfer pricing documentation in a few areas.
One of the most important changes was including in the decree the possibility of preparing a joint document. The joint document allows for the preparation of a document consisting of two parts, similar to the international master file.
Another important change or easing in the new decree was that it allowed the preparation of documents in languages other than Hungarian (English, French and German). Regardless of this, during an inspection the Hungarian tax authority could still request a Hungarian extract or the translation of documentation prepared in a foreign language.
The situation today
The decree currently valid in Hungary has changed in many respects over the years. The simplified documentation has disappeared completely from the regulation (it was actually renamed, see low value added services below), below the HUF 50 million (EUR 160,000) threshold it is not necessary to prepare transfer pricing documentation at all. The notion of low value added services was added to the decree in 2012 as an important new element (it was already applicable as an amendment for the 2011 fiscal year). Accordingly, in the case of certain services (such as IT) reinvoiced with a low surcharge (5 and 10%), the taxpayer can prepare simplified documentation with the data previously required in the simplified record. One significant relief is that if the taxpayer uses services or acquires products of an independent party, and resells them to its related company without a mark-up, it does not have to prepare documentation. The latest changes provide guidance for the use of databases.
The future
The committees of the EU and the OECD continually search for tools and methods to make the development of transfer prices more transparent. Hungary also participated in the OECD’s working committee when they worked out the data supply concept for country-by-country reporting (CbC), but only joined those committed to implementing the data supply as a signatory later on. Starting from the early summer of 2017 the EU prescribes a reporting obligation for its Member States in a directive that is strikingly reminiscent of the OECD data supply. Several European countries (such as Germany) have already included country-by-country reporting in the documentation as a mandatory element. In light of the above, the new direction is clear: transfer pricing documentation will summarise even more information in the future and it will provide more detailed information and more efficient controlling criteria for national tax authorities.
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