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The Ministry of National Economy has established a new decree on the rules of preparing the documentation on transfer pricing. In addition to several old components new ones can also be discovered in the decree, which will become effective on 1 January 2018.
Dear Clients! Dear Readers!
The Ministry for National Economy has established a new decree on the detailed rules of the preparation of the arm's length records. The decree will enter into force in 2018, after the release on 18 October. However, it may also be used on the strength of option in the preparation of the 2017 annual record.
The novelties in brief:
The possibility of making an independent register ceases
The register, which should be prepared annually, shall consist of a masterfile and a local document (i.e. local file).
The masterfile shall contain information on functions, intangible assets and financing relevant to the whole group. It also includes the group's consolidated financial statements for the fiscal year as well as the list and brief description of unilateral arm's length price-setting agreements for each of the group members as well as other tax agreements, for example advance tax rulings.
If until the deadline of the preparation of the documentation - i.e. until the corporate tax return is filed - the above is not available, the documentation consists of only the local file for 12 months from the last day of the tax year. That is the final deadline for the preparation of the masterfile is the 12th months following the record date.
The local file shall contain the management structure, the organization chart and the name of the persons to whom the local management reports. The activities, the business strategy and the competitors shall be described. The unilateral arm's length pricing agreements and other arrangements for the taxation shall be described relevant to the taxpayer.
The records also include per individually controlled transaction the determination of the market price (i.e. arm's length price). The content requirements of this would not change significantly.
Low value adding services
The regulation has not changed significantly, however, the profit margin that can be used varies from 3 to 7 % instead of the previous 3 to 10 %, which was initially in force when the rule was introduced in 2011-2012.
The low value adding services are defined in the decree, which do not belong to the main activity of the companies concerned, and do not exceed the annual HUF 150 million. Furthermore, it should not exceed 5 % of the revenue of the party providing the services, and 10 % of the costs and expenses of the receiver.
Amendment of the register
The register can be amended within the limitation period but not later than the starting of its control, if the register is not in accordance with law or there are mistakes affecting the tax base, the tax, the arm's length price , and the arm's length price normal range (profitability).
The original documentation cannot be amended if the taxpayer lived with his/her legally permissible choice granted in the decree, and would change it by the amendment.
The scope of transactions exempt from the preparation of documentation does not change.
It is advisable to prepare to meet the new legal requirements in time. We would be pleased to help you should you have any questions regarding the above.
Regards:
ABT Treuhand Group
Date: 7. November 2017 | Topic:
The above summary is provided for information purposes only. We recommend that you consult our experts before making any decision based on this information.
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