Transfer prices to be documented

The number of international transactions is growing. Hungary is becoming integrated into the EU market end a growing number of international enterprises decide to establish regional headquarters of holding companies, manufacturing facilities or service centres here. As a result, the number of transactions between affiliated businesses is also increasing. Transfer prices used in such transactions between affiliated companies need to be documented, says Anita Mekler from PWC. Transfer prices are not only important in commercial transactions, but also in royalty payments within groups of companies and in relation to loans from mother companies. Such transactions can be used to reduce the amount of tax payable in countries where the tax burden is high. A new provision has been added to the Law about Corporate Taxation, which calls for the documentation of transfer prices, so that it would be possible to decide if the prices applied are coherent with market prices. A special team has been established by APEH, dedicated to examining the use of transfer prices. Inspections will be focused on the method of calculating transfer prices. According to decree no.18/2003. by the Minister of Finance, a register shall be kept containing all transactions entered into with affiliated enterprises till the date of preparing the corporate tax return. Registers shall be adjusted when changes influencing market price occur which would be taken into consideration by independent parties. A simplified procedure can be used for transactions not exceeding HUF 50 million in value. In case such documentation is missing, APEH may impose a fine, but if transfer prices applied are found to be different from market prices, outstanding amounts may be classified as tax arrears, resulting in an automatic 50 per cent penalty. This risk can be reduced, if companies submit an Advanced Pricing Agreement for approval to APEH. However, APEH is entitled to request information from its foreign counterparts. APA can be requested for a period of 3-5 years, against a fee.