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Global standardization of transfer pricing documentation rules

Since the initial introduction of transfer pricing documentation rules, there has been spectacular expansion in global intra-group trading and the number of states prescribing the preparation of transfer pricing documents has increased also. The sometimes large differences of the transfer pricing documentation rules of individual countries and the enhanced scrutiny of tax authorities in this regard, however, present a never before seen challenge for the multinational companies concerned.

As a response to the emerged situation, OECD published the draft of the debate material “White Paper on transfer pricing documentation” on 30 July 2013. The time for the publication of the draft has indeed come as the chapter of the OECD Transfer Pricing Guidelines on documentation (Chapter V) was prepared more than 15 years ago and it therefore does not provide proper guidance in today’s substantially different economic environment.

The main purpose of the draft was on the one hand to start a dialogue between individual governments and taxpayers on the international transfer pricing documentation environment. On the other hand, the draft provides an overview of the current national and international transfer pricing documentation regulations and summarizes, based on feedback from the business sector and from tax authorities, the experience relating to transfer pricing documentation. The draft also makes specific form and content suggestions on how the transfer pricing documentation obligation could be simplified and, to the extent possible, standardized at global scale.

Based on the content of the draft, we can say that the taxpayers concerned still find it a rather large burden to comply fully with the various transfer pricing documentation requirements of different countries. Tax authorities, on the other hand, find that information necessary for getting an overview of and consequently, for a thorough audit of the global operation of taxpayers is missing from the documentations. For this reason, taxpayers find that the requirement of preparing transfer pricing documentations serves the avoidance of penalties only and otherwise brings no benefit at all, while tax authorities often concentrate on less substantial aspects due to the enormous volume of information and easily fail to identify details representing significant transfer pricing issues. The draft raises the question whether the transfer pricing documentation rules serve their original purpose efficiently.

The draft was presented for public debate in September 2013 while the recommendations and remarks received were published by OECD in October.

The English version of the draft is available here. 
The opinion of RSM International published by OECD is also available in English here.

The public discussion of the draft took place at the Paris seat of OECD this week. Further steps are expected to be published later on.

Hungarian implications of the OECD transfer pricing documentation rules

For now, we cannot expect any direct impact on Hungary. This transfer pricing draft is only a debate material at the moment. It is therefore unclear in what form it will be finalized by OECD. A further question is the binding force the material will have, once accepted, and the impact it will have on international (including Hungarian) transfer pricing related legislation.

Currently, the transfer pricing guidelines of OECD play a dominant role in the forming of the professional opinions of both tax authorities and taxpayers and in their debate but have no binding force on the parties.

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