TaxAlert New decree on transfer pricing documentation obligations 24 October 2017

Dear Client, On 18 October 2017, the Ministry of National Economy (“NGM”) issued its decree on the documentation obligations for the determination of arm’s length price (“NGM Decree”), which shall enter into force on the 30 th day following its promulgation. The new decree contains several changes to the provisions of the former Decree 22/2009. (X. 16.) of the Ministry of Finance on the documentation obligations in connection with the determination of arm’s length price (“Decree 22/2009”). This missive summarizes the key changes to the regulation. Fulfillment of documentation obligation In line with current international trends, the NGM Decree integrates the documentation practice introduced by reform measures from the OECD and the European Union. The new legislation aims to reform the previous Decree’s provisions on consolidated and standalone documentation. Based on the NGM Decree, in future the documentation will consist of a master file and a local file. –– According to the provisions of the NGM Decree, a group is obligated to prepare a master file, if it has at least one member registered outside of Hungary. The master file shall contain general, standardized information on all members of the group, based on the NGM Decree, including: –– information about the group’s organizational structure; –– a general introduction on the group; –– a depiction of the value chain of the group’s most significant products and an outline of its main geographic markets; –– a list of important service agreements concluded between related parties; –– a functional analysis showing the contribution

of each member entity towards value creation; –– information regarding the group’s intangible goods; –– presentation of the group’s inter-company financial activity (including significant financing agreements concluded with unrelated parties); –– the group’s financial and tax positions; –– a list and brief presentation of the group’s effective unilateral advance pricing agreements and other tax-related agreements on the distribution of income between countries; –– the master file’s date of preparation. –– The local file presents the local taxpayer and the agreements between the taxpayer and its related parties, providing information based on the NGM Decree, including: –– the organizational structure of the local entity; –– a description of the entity’s activity and its business strategy; –– presentation of main competitors; –– information on controlled transactions;

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–– a copy of effective advance pricing agreements and other tax rulings to which the local tax jurisdiction is not a party and which are related to controlled transactions; –– the local file’s date of preparation.

Deadlines The requirements of the local file can be included via cross-reference in the master file. Such reference shall be sufficient if the master file contains the information defined in the NGM Decree and it is prepared by the filing date of the corporate tax return. If the master file for the relevant financial year is not available due to the regulations the group’s ultimate parent company is subject to, then it must be prepared before the deadline for the preparation of the master file of the group’s ultimate parent company, but no later than 12 months after the last day of the taxpayer’s tax year. Provided that the deadline for transfer pricing documentation preparation for the 2017 tax year is after the promulgation date of the NGM Decree, then completion of the documentation preparation obligation shall be performed in accordance with Decree 22/2009. However, the new NGM Decree on transfer pricing documentation can already be applied for the tax year starting in 2017, and it must be