The two basic parts of the transfer pricing documentation are local and the master document, which each debtor must have.
Turnover rose local document consists of a descriptive analysis of the business and the transaction under consideration, and an economic analysis to determine the arm's length price. This involves choosing the most appropriate method from among those indicated in the Tao Law, taking into account the specificities of the transaction (comparative price method; resale price method; cost and income method; method based on net profit on the transaction; profit-sharing method; or other method if the arm's length price cannot be determined by any of the methods).
The local document must be prepared by the date of submission of the Tao return.
In addition to the transfer pricing documentation obligation, a reporting obligation in the context of the arm's length price determination came into force in 2023. The data must be provided in the corporate tax return, which is based on the local document.
Turnover rose master document describes the operations and transfer pricing practices of the entire group. The master document may be prepared by the parent company or any other group member, but in this case it is necessary to check that the master document complies with Hungarian regulatory requirements. If a master document is not available within the group, it is the responsibility of the Hungarian company to ensure that it is. In the case where the parent company of the group prepares the Masterfile, the deadline for its preparation will be decisive, but the study must be available at the latest by the last day of the 12th month following the tax year.
Since transfer pricing documentation is prepared for a given tax year, it is necessary to review it annually, i.e. to record the current data and any changes, and to check that it complies with current regulations and tax authority requirements.
What can happen if documentation is missing?
The fine for missing or incomplete transfer pricing records is HUF 5 million, and HUF 10 million for repeated infringements, which can be imposed per transaction affected by the record-keeping obligation, so the fines for multiple transactions add up.
In addition, if the tax authority concludes that the transfer prices applied are inappropriate, it may declare a tax deficiency and adjust the corporate tax base.
Keep your company's transfer pricing documentation safe!
Is there anything to do if you are not subject to the documentation requirement?
As described earlier, not all transactions between related parties are subject to transfer pricing documentation, but the pricing of all related party transactions must comply with the arm's length principle. Therefore, if direct transaction-level comparables are not available, it is advisable to pre-determine the applicable prices on the basis of a benchmark analysis. These analyses can serve as appropriate background documentation in the event of an audit by the tax authorities and companies can avoid the imposition of tax penalties and late payment penalties on transfer prices.
Although small business tax (SIT) subjects are not subject to the documentation and reporting requirements, in the case of a contract with an affiliated company, the consideration must be the arm's length price, which they must determine in accordance with the Tao.
How can ICT Business Advisory Zrt. help?
The experienced experts of ICT Business Advisory Zrt. provide support in preparing and updating transfer pricing documentation to ensure that companies comply with all aspects of the legislation. Our services include:
- Creating, reviewing and updating local and master files.
- Assistance with data reporting obligations.
- Analysis and documentation of individual transactions.
- Preparation for tax authority audits.
If you would like your company's transfer pricing documentation to be prepared to the highest professional standards, please contact the experts at ICT Business Advisory Zrt.
For more information and a consultation, contact us today!
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