Over the past two years, the Revenue Agency has focused significantly on audits of affiliated companies. During tax inspections, various intercompany transactions have been examined, mostly resulting in negative experiences, with inspectors discovering errors and gaps across a wide range of cases. The most significant sanctions have primarily targeted automotive companies and manufacturing firms.
In 2024, the Revenue Agency will pay even more attention and scrutiny than before regarding transfer pricing. This is due to several reasons, including the significant transfer pricing issues revealed in the last two years, the stricter national regulations introduced in 2022, as well as commitments made under the RRP for more decisive action against aggressive tax planning and more effective implementation of the arm’s length principle. To increase scrutiny on transfer pricing, this year the Revenue Agency will pay particular attention to the declarations submitted on transfer pricing and the use of international information.
Based on past audit experiences and ongoing assessment of risks from various national and international data sources, experts at the Revenue Agency have developed an even more complex transfer pricing audit program compared to the past. This year’s audit plan includes recurring elements but also introduces new ones, where risk assessment related to transfer pricing reporting plays a prominent role.
Considering that associated enterprises represent a significant and high-tax-impact portion, these businesses will remain the focus during audits. Typically, advance pricing agreements (APA) are also associated with this group, for which audits can be expected in 2024 as well.
Due to negative experiences in the automotive sector in 2022 and 2023 and numerous transfer pricing issues identified, audits in the sector will continue this year, involving both manufacturers and distributors. Partially overlapping with the automotive sector and other productive sectors of the nation, audits will continue to examine the profitability or loss of associated manufacturing entities after careful risk analysis. Several transfer pricing-related issues were discovered during previous audits of these companies.
Thanks to assignments from previous years and international information, it is expected that audits of transfer pricing for companies operating in the pharmaceutical sector will also begin this year. Given the characteristics of the sector, intercompany transactions related to intangible assets and corporate restructuring are expected to be in focus, with risk assessment and selection primarily supported by transfer pricing reporting.
International data and information contained in transfer pricing declarations constitute an important part of the Revenue Agency’s information assets. This year, even greater emphasis will be placed on using such data sources. Consequently, discrepancies found solely in this data or identified transfer pricing risks could lead to targeted selection of affiliated companies or transactions for focused audits.
Through the application of complex risk analysis, the Revenue Agency now has the ability to subject all associated companies of a group to risk assessment and, based on that, conduct simultaneous audits.
Finally, this year will also see particular attention given to the audit of financial transactions between associated enterprises, with which Revenue Agency tax inspectors have been engaged for years. Detailed data on these transactions is available thanks to the information contained in transfer pricing declarations, allowing targeted selection for specific thematic audits on such transactions.
In summary, in 2024, the Revenue Agency will dedicate much more attention to verifying transfer pricing of transactions between affiliated companies. To avoid more severe sanctions and comply with stricter regulations, it is advisable for taxpayers to engage in the preparation of more detailed and adequately supported transfer pricing documentation.
The original version of this article was published in Hungarian on the magazine Periodika by saldo.hu.
