In accordance with the BEPS Action plan and the international trends, the Minister of Finance Decree of 2009 was replaced by a new transfer pricing decree, effective as of 2018. The decree’s provisions must be applied for the first time in relation to documentation for liabilities for fiscal years beginning in 2018. The main characteristics and some novelties of the new decree are as follows:
The new rule clearly states that making changes is allowed even if an error is detected affecting taxes or arm’s length prices in a completed document. The relevance of this rule is that although a final TP document does not have to be submitted to the Hungarian tax authority, it has to be prepared by the submission date of the corporate income tax return. Now, subsequent changes in the document can be made by law without triggering a default penalty.
The size of the penalty imposed for incomplete documentation will not change in 2018, but is still very high. It can amount to HUF 2 million (approx. EUR 6,500) per incomplete or missing document, and as much as HUF 4 million (approx. EUR 13,000) in the case of a repeated failure to comply with the laws.
Structure & language
As of 2018, it is no longer possible to prepare independent documentation. This system has been replaced by one comprising two separate documents: the master file and the local file. Compared with previous years, it is clear that more detailed information is needed in the TP documentation, which requires joint efforts from tax centres and local heads of taxes and tax advisors; e.g. a complete master file cannot be prepared without the effective assistance of the tax headquarters of multinational companies. In practice, we can see that sometimes the description of a specific unique transaction (including related turnover and costs) resulting from the figures of the financial statements can be challenging.
On a positive note, the records and underlying documentation do not have to be prepared in Hungarian. Nevertheless, we still recommend that the documentation be compiled in English, German, French or Hungarian (otherwise, the tax authority may ask for the documentation to be translated, possibly resulting in undue additional expenses).
For companies selected as comparable, it will suffice in the future to carry out database filtering every three years (the financial data of the companies used for the comparisons should be updated every year), provided that there is no significant change in the business activity during this time.
There is no need to prepare documentation on product and service sales recharged without a mark-up, provided that these were transacted with an independent party. Under certain conditions, a simplified documentation for intragroup services of low added value can be prepared.
In Hungary, there is a special body within the Hungarian tax authority specialising in transfer pricing questions. As of 1 November 2017, there is a so called transfer pricing inspection methodology department responsible for the education of inspectors and assistance in TP inspections. Furthermore, this team is also responsible for MAP procedures. The changes in the related TP decree and the increasing number of TP inspections shows that this field remains one of the major targets of the Hungarian tax authority in the future.