Starting from 2018, all associated enterprises are required to prepare their transfer pricing documentation in accordance with the new transfer pricing decree (Decree No. 32/2017 (X.18) of the Ministry for National Economy). Although the new decree provides for a number of changes in terms of both content and formal requirements, the deadline for preparation has not changed compared to the previous years. In other words, the transfer pricing documentation is to be drawn up simultaneously with the corporate income tax (“CIT”) return for the current year, but no later than the date on which the CIT return is filed. For taxpayers whose business year coincides with the calendar year, this date is 31 May 2019.
Please note that 31 May is the final deadline, however, if the entity files its CIT return earlier, it is also required to draw up the transfer pricing documentation earlier. In such cases, the tax authority may ask for the transfer pricing documentation during an audit even before the last day of May.
Mandatory multi-level transfer pricing documentation
Beside the impending deadline, one should also bear in mind that starting from the 2018 tax year all associated enterprises will be required to apply the new, multi-level documentation format that shall comprise, as a minimum, the “Master File” and the “Local File”. The third component of the transfer pricing documentation is the CbC (Country-by-Country) report which, for the time being, is only applicable to domestic enterprises that are a member of a company group whose consolidated sales revenues reach EUR 750 million. The group’s sales figures for the year preceding the financial year of data reporting shall be taken into account for the purposes of the documentation.
Certain new, mandatory components are added to the content of the transfer pricing documentation
In the rest of this article, we will focus on the tasks associated with the preparation of the master file and the local file as provided for in the NGM decree.
The new documentation decree does not only provide for the preparation of multi-level documentation but also significantly extends the content requirements of both the master and the local files. As a result, both the preparation of the documentation and the collection of the required data may take substantially longer than in former years.
The Local File shall be prepared separately for all local member firms. In terms of its contents, the Local File is similar to the stand-alone transfer pricing documentation prepared in accordance with the former transfer pricing decree. However, this document is required to contain a number of new items that were formerly not mandatory components of the documentation. These include, for example, a detailed description of the composition of management and the precise decision-making and reporting processes. The preparation of the Local File is always the responsibility of the local member firm.
The most significant change compared to the previous years is that, with effect from 2018, a separate Master File is also a mandatory component of the documentation obligation. This document is required to give an overarching picture of the entire company group. Due to its complexity and comprehensive nature, this document is typically prepared by the parent company or the entity responsible for consolidation. However, depending on the transfer pricing rules applicable in the country of registration of the parent company (or the absence thereof) or on the cost/benefit analysis, it may also be the case that the Hungarian member firm will eventually draw up this document. In such cases, similarly to the preparation of the Local File, the most efficient way for the taxpayer to proceed is to get the Hungarian transfer pricing advisor involved. In such cases, it is of paramount importance that the information required for the preparation of the Master File be available.
Where the group centrally prepares and then distributes the Master File to the member firms (and the Local File is drafted on time),the Master File only needs to be completed by the deadline applicable in the country of registration of the ultimate parent company. The documentation is to be available within 12 months of the last day of the tax year of the entity at the latest which is 31 December 2019 for taxpayers whose financial year coincides with the calendar year. If the Master File is to be prepared by the Hungarian entity because no such document is provided by the parent company, then the deadline for preparation coincides with the deadline applicable to the Local File.