Recently, the tax authority has been examining not just the existence of transfer pricing documentation in detail but also that the content is appropriate, and so particular emphasis should be placed on this area. Below is a short summary of the expected changes in the MoF decree governing the preparation of transfer pricing records.
According to the draft law signed by the Minister of Economy which has been on the government’s website since March, changes are likely in several areas in Decree 22/2009. (X.16.) PM on transfer pricing records.
One significant change compared to the previous legislation is that transfer pricing records must be compiled per contract (previously it was for each controlled transaction), even if several controlled transactions take place based on one contract. For lack of a contract, however, transfer pricing records must be prepared for each controlled transaction.
According to the draft law, transfer pricing documentation does not have to be prepared from the tax year a request is submitted in advance to the tax authority for the assessment of arm’s length prices until the last day of the tax year in which the tax authority decision is valid. However, please note that this exemption is subject to the circumstances set forth in the decision prevailing unchanged until the end of said period.
According to the amendment there is also no obligation to prepare documentation when passing on services/products not associated with the core activity to related companies for an unchanged sum, provided that the supplier of the service or product is not related to the taxpayer (foreign entity) or the party bearing the costs. However, if the value of the service or product is passed on to more than one related company, then the taxpayer has to substantiate the arm’s length nature of the price applied.
The draft law also states that when examining the HUF 50 million limit providing exemption from the obligation to keep records on arm’s length prices, only the value of supplies in the tax year must be taken into account. This provides significant relief compared to the previous regulation, given that when assessing the HUF 50 million threshold it is no longer necessary to consider the service and product supplies from the contract date until the end of the tax year. If the contractual value is not denominated in HUF, the foreign exchange rate of the National Bank of Hungary valid on the contracting date must be applied when examining the HUF 50 million threshold for exemption from preparing transfer pricing documentation, and when examining the HUF 150 million threshold for “low added value” services within the group.
Additionally, the draft law states that the arm’s length mark-up is the mark-up applied at the related party affected by the controlled transaction, but one which is no less than 3% and no more than 10% (when preparing records on low added value services within the group, where the same types of service must be considered together per tax year).
According to one of the most important and practical amendments, when using public databases on comparable companies the steps followed must be very detailed and defined, while both quantitative and qualitative filters must be applied.
