A few days ago, the journal “Szakma” (Profession) published further details on the changes in the field of transfer pricing, in an unusual move, by the Ministry of Finance, but before the final legislation was promulgated.

The tax authority expects mandatory reporting on arm’s length prices in a uniform way, on the basis of a predetermined nomenclature, so in dubious cases it will be worth acting with much circumspection and care. Data must be reported on all transactions that are not exempted from the disclosure obligation, regardless of whether a written contract has been drawn up for the transaction.

It has been confirmed that the threshold for the documentation requirement will be increased from HUF 50 million to HUF 100 million; further, to ensure the enforceability of the increased fines, the possibility to offset similar transactions of opposite direction will end, and the documentations to be drawn up will be the same as the number of transactions that can be identified in the year under review.  Finally, it has been clarified to what extent the taxpayer’s financial data for a given transaction should be linked to the data of the annual accounts.

The content of the data disclosure obligation is briefly described below:

• certain transactions exceeding the threshold but exempted from documentation requirements should be reported in a limited manner, but the data on transactions covered by advance pricing agreements (APA) must be reported fully;

• group corporate tax subjects must disclose data fully on their transactions with their non-participating but affiliated enterprises;

• each controlled (related) transaction will have to be classified into one of the 53 categories defined by the authority, and the most representative TEÁOR (business activity) code for that transaction must be provided;

• the name, tax number or registration number, as well as the tax residence of each affiliated enterprise must be provided;

• the net consideration actually accounted for in the current year must be reported for each affiliated partner, in HUF, and it will be also necessary to provide data on the following:

1 – the amount of positive or negative changes to the corporate tax base relating to the adjustment of the arm’s length price for the current year; and

2 – the method used for determining the arm’s length price;

• the accounting standard applied by the tested party must be provided,

• the arm’s length range determined in the course of the analysis and the rate actually achieved or applied by the tested party must be described in detail as follows:

1 – the profitability indicator used in case of the resale prices method, the cost plus method, and the transactional net margin method;

2 – the percentage value of the royalty or the service fee in case of the comparative prices method or when valuable rights and services are used;

3 – in the case of loans and other financial transactions, the total interest rate or the value of the reference interest and interest premium; and

4 – the price used in cases where a unit price is used as an arm’s length price.

In connection with the mandatory data disclosure, it was also emphasised that comparison with the control data available to the tax authority is expected to increase the selection of taxpayers for audits in the future, and therefore, we would like to draw your attention once again to the related deadlines and the importance of preparation.