What is the purpose of the transfer pricing documentation?
It allows the taxpayer to demonstrate that the prices (transfer prices) used in transactions with related companies are prices in free competition (or not a free competition and therefore includes a calculation to adjust the tax base). Therefore, transfer pricing documentation is an analysis that describes in detail each transaction to be documented, and examines and verifies the prices used in transactions using the most appropriate method and evidence. The documentation shall include the circumstances of the transactions, the taxable person and their role in the group, the sector, and the whole group.
Who is required to keep the transfer pricing documentation?
Medium-sized and large enterprises are obliged to prepare the transfer pricing documentation in accordance with the provisions of the SME Act. This means that taxpayers with a number of employees equal to or less than 50, but with a turnover and a total balance sheet of 10 million euros, are subject to the obligation to keep documentation on transfer prices. It is very important that the classification of the business size and the data required for the indicators are examined at the company group level.
Taxpayers who are micro or small enterprises at the group level are therefore exempted from the requirement to prepare documentation. The examination must be carried out on the last day of the fiscal year, on the basis of the last two years of closed balance sheets.
What should taxpayers do if they are not obliged to prepare the documentation?
For taxpayers exempted from the requirement to prepare documentation, the advantage is that they do not have to prove transfer prices in the form of transfer pricing documentation required by Decree NGM 32/2017, but any other form and content of the documentation, analysis, and statements are sufficient. There is no fixed module for this, but it is important to know that the analysis of transactions with related parties is mandatory for all taxpayers.
If the price of the related party transaction differs from the free competition’s price, the adjustment of the tax base in the event of an increase: it’s mandatory. In the event of a decrease: it’s subject to various conditions.
The adjustment of the tax base has to be examined for corporation tax, local business turnover tax, contribution to innovation, income tax on energy suppliers, small business tax, VAT, and other taxes, because several taxes may be involved in a single transaction.
The adjustment can be achieved not only by adjusting the tax base but also by issuing an adjustment invoice or correction.
Is the transfer pricing documentation necessary for all transactions?
In some cases, taxpayers obliged to prepare transfer pricing documentation can be exempted from this obligation according to the Decree 32/2017 NGM, if:
- transactions with a private person other than a sole trader,
- in the case of transactions on the stock exchange or at officially fixed prices,
- transactions at a market price of less than HUF 50 million (excluding VAT),
- transactions invoiced by an independent entity in the same form and at the same price.
In all cases, the exemptions should be carefully examined in the following circumstances. It may be difficult, for example, to determine whether:
- the rule of aggregation of transactions applies or
- whether the transaction (costs, interest on credit) was actually in the interest of the company
- if the contractual terms of the transaction were identical to the actual/effective ones
- if the subsequent billing did not involve any added value or cost for the party that issued the invoice, etc.
What is the deadline for preparing transfer pricing documentation?
The deadline for the preparation of transfer pricing documentation is the date of submission of the company tax return for the tax year in question, but not later than the deadline for the submission of such a declaration (the last day of the fifth month following the end of the fiscal year, 31st May).
Whose responsibility is it to prepare the document?
It is the taxpayer’s responsibility to have the document available.
What is the penalty for not keeping transfer pricing records?
If the transfer pricing documentation, or any of its elements, is missing, incomplete, or not filled in in detail and with the correct content, or even if it has not been completed in time, a periodic penalty payment of up to HUF 5 million may be imposed.
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