Transfer pricing

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Though the corporate tax act has been expressly containing the tax base correction items in relation to consideration money between related parties since 1992, the arm’s length price principle has only been in the focus of interest since September 2003 when the documentation obligation was introduced in Hungary as well.

This issue gained increasing importance over the past years, and it has remained a timely issue due to the varying audit practices of the Tax Authority and the effects of recession.

What are the challenges related to transfer pricing?

Based on our experiences, business managers have to face the following challenges in relation to transfer pricing.

Challenges within the company group

• Within the company group, sharing the costs is a permanent expectation
• The transfer pricing policy within the company was elaborated for static economic circumstances, without taking into account the effects of recession.
• The changes in price calculation, the sudden change in the net profit margin, and the introduction of new sales chains need special attention upon the preparation of the documentation.
• No comparative data regarding appropriate independent transactions are available in connection with the company’s special products and individual services.
• The parent company has already prepared masterfile which do not fully comply with the severe Hungarian regulations, even taking the new order of the Ministry of Finance into account.
• The preparation of the transfer pricing regulations takes time and requires the cooperation of the staff of different areas.
• In the case of any significant change in the circumstances of the transaction, the transfer price documentations must be prepared repeatedly.
• Due to the changes in the independent comparative data and the used corporate data, the records must be revised, updated and supplemented year by year.

Challenges outside the company group

• Transfer pricing documentations constitute a special area of Tax Authority audits, and according to our experiences, in addition to the checking of the format elements, more and more emphasis is laid on the audit of the content.
• Severe default penalty can be imposed if the transfer pricing documentation is not properly prepared.  (2 million forints/contract)
• Tax arrears may arise if the transfer prices are improperly determined, which may also affect several tax types. (corporate tax, VAT, local business tax)

What kind of possibilities are there to overcome challenges

• Transfer price planning prior to the introduction of the transaction
• Systematic collection of data related to the transfer pricing
• Preparation of a detailed contract about the transactions
• Detailed checking of compliance with the formal requirements
• Collection of arguments that support the prices determined in accordance with the transfer price regulation
• Adaptation of the masterfiles
• There is also the possibility to prepare so-called consolidated documentations
• Preparation of detailed transfer pricing documentation as prescribed by the regulations
• Submission of advance pricing arrangements (APA) in order to reduce uncertainties

How can the team of BDO Magyarország Tanácsadó Kft. help you?

With respect to transfer pricing as well, we offer our clients customised, individual, cost-efficient solutions in the following fields:

• examination and planning of transfer prices
• opinion on contracts concluded between related parties
• preparation and reviewing of transfer pricing documentations
• collection of arguments in line with the transfer pricing principle related to the existing pricing system
• analysis of the comparative profit range on the basis of the domestic (DATAX) and international (AMADEUS) databases
• preparation of advance pricing arrangement (APA)
• support in tax authority proceedings
• pricing of intangible assets (brand name, know how, licence, patent, trademark, etc.), which is performed by our CF (corporate finance) division

Integrated transfer pricing team

There is a transfer pricing team which operates at BDO Magyarország Tanácsadó Kft. integrated into the international taxation field, which enables us to examine the effect of the transactions on the different tax types within each company group, in a complex manner. Thus, if necessary, we can help not only in the planning of transfer prices, but also in the subsequent complex examination of already completed transactions in terms of tax law.

In addition to transfer pricing, our consultants have extensive professional knowledge in other tax types as well, which enables them to examine transactions in a complex manner.

Support in the case of a legal dispute with the Tax Authority

In connection with documentations prepared by us, we ensure that queries can be made with respect to the applied databases and we provide support with Tax Authority audits, due to which we can help in the case of any legal dispute that may arise with the Tax Authority.

International background

Being part of the 5^th largest consulting network of the world, we maintain close relationship with our partner offices, which enables us to carry out quick consultation with respect to international transactions.

Our experiences

BDO Magyarország Tanácsadó Kft. has been accumulating experiences in the preparation of documentations since the introduction of the obligation to prepare transfer pricing documentations (01.09.2003). Over the past years, we prepared transfer pricing documentations in connection with the following major transaction types:

• product selling within the company group
• services within the company group
• loan transactions
• cash pooling
• management fees
• IT services
• marketing services
• representation costs
• rents
• cost reinvoicing
• R&D
• commission fee
• transactions related to intellectual products

We have experiences with transfer pricing consultation in the following industrial sectors:

• energetics
• pharmaceutical sector
• electronics
• IT
• real estate
• machine production
• vehicle trade
• trade
• financial sector (banks, leasing companies)
• agriculture

Our wide range of experiences in the industrial sector facilitate quick and efficient work. Thank you for your attention!

The tax consulting team of BDO Magyarország Tanácsadó Kft.

To download the material related to transfer pricing in an electronic format click here!

Contacts:

Marianna Bártfai	Junior Partner, Company Mnager	marianna.bartfai@bdo.hu
Zsolt Sóki	Managing Director, Tax Partner	zsolt.soki@bdo.hu

Postal address:	1103 Budapest, Kőér u. 2/A.
Telephones numbers:	+36 1235 30 10; +36 1235 30 90
Fax:	+36 1266 6438
E-mail:	tax@bdo.hu
Web:	www.bdo.hu/en

Please take a look at our other services:

- Administrative services – VAT
- Expat services
- Value Added Tay – VAT abroad