Corporate taxpayer groups: can transfer pricing requirements be overlooked?
While as a general rule, the transfer pricing requirements of the CIT Act (including the transfer pricing documentation requirements) are not applicable to transactions conducted between corporate taxpayer group members, transfer pricing liabilities may still arise.
July 2019, Budapest
Pursuant to the new rules, group taxation is available as of 1 January 2019 for companies that have a 75% direct or indirect majority control over one another. The new regulation is surprisingly popular: over 200 groups have applied for creating a corporate taxpayer group to date.
As a general rule, the transfer pricing requirements of the CIT Act (including the transfer pricing documentation requirements) are not applicable to transactions conducted between corporate taxpayer group members.
However, the exemption of group members from transfer pricing requirements does not apply to transactions conducted between a member and a non-group member. In the case of such transactions, both parties are subject to the documentation requirements of the CIT Act. Furthermore, for transactions with tax impact in the pre- or post-corporate taxpayer group period special rules apply. These se forth documentation obligations or unilateral tax base increases. Therefore, reviewing intra-group transactions from a transfer pricing perspective between corporate taxpayer group members is still recommended
– set forth Balázs Prágay-Szabó, manager of Deloitte’s transfer pricing team.
Furthermore, in terms of transactions between companies involved in group corporate taxation, the applied price must be considered, especially in the case of free transactions or service fees that contradict the requirements of reasonable management. The related regulations do not include any exceptions from the requirement of due practice of law. Consequently, transactions without a real economic purpose, or transactions aimed at obtaining a tax advantage contrary to the purposes of the law may entail corporate income tax risks, as well as transfer pricing risks for tax groups.
In addition, if pricing differs from the arm’s length principle, members may have to make adjustments to their local business tax and innovation contribution tax bases. As for these taxes, the tax liability should be calculated based on arm’s length prices.