Significant changes resulting from the adaptation of this law can be seen in the scope of transfer pricing documentation.
What is transfer pricing?
Transfer pricing regulations supervise whether the pricing of transactions conducted between affiliated entities is analogous with the market price (known as the Arm’s Length Principle). By preventing affiliated entities from eluding tax obligations with price manipulation in intra-group transactions, the obligation of transfer pricing documentation maintains the purity of economic competition and prevents tax fraud.
Who is required to prepare the transfer pricing register?
Despite the fact that company groups were obliged to prepare transfer price registers when the value of aggregate transactions reached HUF 50 million per year, they did not have to provide data to the tax office until now. According to the new provision, these affiliated entities must provide data on related business transactions in the corporate tax return.
What should the transfer pricing register contain?
The Master File should contain the following elements:
- Group description
- Description of the group’s essential intangible and legal values
- Description of the group’s essential financial transactions
- Indication financial and tax information
The Local File is more complex. It must present the taxpayer, its business model, operation, strategy, organizational structure, decision-makers, management reports, main competitors, as well as business reorganizations carried out in the current and previous year.
Moreover, for each transaction, the case must be presented with the following: nature and type of contract, contractual conditions, implementation of function, economic rationality, risk sharing, analysis of intangible assets, industry analysis, potentially available and external comparative data, definition of enterprises, benchmark analysis, price investigation, normal market price, price band and profit margin.
What happens when the obligation is not fulfilled?
In the event that the transfer pricing documentation obligation remains unfulfilled, the default fine that can be imposed has increased from the current HUF 2 million to HUF 5 million. According to the 2023 budget law, the maximum penalty for repeated infringements will increase from the previous HUF 4 million to HUF 10 million.
What is the deadline to submit the transfer pricing report?
The deadline for preparing the transfer price register is the day of submitting the corporate tax return for the given business year, but no later than the deadline for submitting this tax return (the last day of the 5th month following the business year).
The provisions of the new data obligation must first be applied to corporate tax returns submitted after December 31, 2022.
The growing demand for information and the simultaneous 150 percent increase in default fines clearly predict that the tax authorities will give priority to the area of transfer pricing.