Focus on Transfer Pricing Documentation Review

Tax & Legal Alert | PwC Hungary | 5 November 2024

Recent audit experiences indicate that the HTA are increasing their review efforts on transfer pricing documentation, including local files and master files. Tax audits place significant emphasis on the formal requirements outlined in Decree No. 32/2017 (X. 18.) of the Ministry for National Economy on the Documentation Requirements Pertaining to the Determination of the Arm's Length Price (the Decree). Missing or incomplete requirements specified in the Decree may result in default penalties being imposed by the tax authority.

Penalties related to non-compliance have increased since 2022; the maximum penalty can reach up to five million HUF per documentation, and up to ten million HUF for repeated violations. Furthermore, given the modifications to the concept of transfer pricing documentation, these penalties can be applied multiple times per tax year.

Our experience shows that the HTA particularly examine, for example:

• The justification of consolidated transaction analysis,

• The linkage between related party transactions and the accounting information system (i.e., annual report), with special attention to the availability of segmented income statements (where relevant), and

• The detailed justification of comparability adjustments (if such adjustments are applied by taxpayers).

Some of this information often needs to be sourced from the parent company or other group entities, so it is advisable to allocate sufficient time for data collection.

Another important observation is that the HTA pay special attention to the review of data provision submitted as part of the corporate tax return, comparing its content with the data in the documentation. The data provision summarizes the conclusions in the documentation for the tax authority, making it crucial that the documentation, the data provision submitted in the corporate tax return, and the financial statements are consistent with one another.

The proposed autumn tax bill reinforces this, specifying the rules for compliance review and explicitly authorizing the HTA to check transfer pricing documentation and data provision during the compliance review. According to the draft tax bill, effective January 1, 2025, the HTA will have 60 days to review these documents.

In light of the planned legislative changes, it is crucial that the master file, local file, and data provision fully comply with the formal requirements prescribed by law and are consistent with each other. Our expert tax advisory team is available to assist you in this process, ensuring that your documentation meets all necessary requirements.