Transfer Pricing control in Hungary

Aim of the transfer pricing documentation is to determine whether the transfer prices of intercompany transactions (controlled transactions) are similar to those of comparable transactions between independent parties under comparable circumstances (uncontrolled transactions). Possible price differences indicate adjustment of the company’s corporation income tax base.

Legal and international background

Finance Ministry statute number 18/2003 (VII.16.) on arm’s length register obligations (18/2003 FM statute) – effective for 2010. and preceding years
  • Finance Ministry statute number 22/2009 (X.16.) on arm’s length register obligations (22/2009 FM statute)
  • Act LXXXI. Year 1996. on corporate income and dividend tax (CIT law)
  • Act. XXXIV. Year 2004. on small- and middle sized enterprises (SME law)
  • 1995-2000 OECD Transfer pricing Guidelines (OECD TP Guidelines).

Who is obliged to prepare transfer pricing documentation?

All enterprises not classified as small sized companies by the Act on CIT on the last day of the tax year, and conducted business with their related companies in the subject year are obliged to prepare transfer pricing documentation.

At first the company’s legally defined related parties shall be identified. Secondly it has to be considered if the company conducted any business with the related parties during the business year, than it is advised to evaluate if any of the identified controlled transactions qualify for exception, and the company is not obliged to prepare transfer pricing documentation on them.

Requirements for transfer pricing documentation

The transfer pricing documentations are prepared by controlled transactions.

Consolidated transfer pricing documentation may be prepared if the requirement of comparability is not harmed, and the subject of contracts are the same, or similar. The fact of consolidation should be explained in details.

Amendment of the transfer pricing documentation is required, if conditions of the controlled transactions have changed to the extent that would normally result price modification between independent parties.

Foreign language transfer pricing documentations are acceptable, but the tax authority may ask for Hungarian translation.

The taxpayer may choose from three types of transfer pricing documentations, and this choice shall be reported in the annual corporation tax return:

  • Individual transfer pricing documentation
  • Common transfer pricing documentation (EU Masterfile and specific documentations)
  • Transfer pricing documentation on low added value intercompany services

The deadline for preparation of transfer pricing documentations is the same as the deadline of corporation income tax return.

Information resources of comparables are:

  • Contracts with independent parties
  • Contracts of related parties with independent parties
  • Contracts between independent parties
  • Public databases (approved by the tax authority) on comparable products and services

The Hungarian tax authority accepted and uses AMADEUS toll database. If other information resources are not available, our company also uses AMADEUS to browse comparable products and services.

AMADEUS public database was developed by an independent Belgian electronic publishing company (Bureau van Dijk). The database incorporates detailed financial figures of the last 10 years about more than 10 million European companies from 41 countries.

Content of transfer pricing documentation

Since the introduction of transfer pricing control in Hungary the content requirements of transfer pricing documentations have changed, therefore it is essential to adopt the effective regulations specific for the subject year.

We have prepared the transfer pricing content checklist specific for each year that may help you to:

  • make sure that your existing transfer pricing documentations meet all requirements of effective regulations, or
  • prepare your transfer pricing documentations without missing any compulsory element.
 

Leave a comment

 Security code