It is important to pay attention to the specifics of the 2020 transfer pricing documentation

Two important developments may have significant consequences for the transfer pricing compliance in 2020 that we would like to highlight in our present newsletter.

One of these developments is that on 11 February 2020 the OECD released the report named “Transfer Pricing Guidance on Financial Transactions: Inclusive Framework on BEPS: Actions 4, 8-10”. This is a final guidance on the financial transactions, which has become part of the OECD Transfer Pricing Guidelines (included as a new Chapter X, as well as an addition to Chapter 1. The next edition of the OECD Transfer Pricing Guidelines will be available in the second half of 2020). It is the first time the OECD Transfer Pricing Guidelines include guidance on the transfer pricing aspects of financial transactions, which will contribute to consistency in the interpretation of the arm’s length principle. The guidance describes the transfer pricing aspects of financial transactions grouped by the main types of transactions and includes a number of examples to illustrate the application of the principles laid down previously. With this, the specifically elaborated methods used earlier in the transfer pricing practice have been officially formulated (as in the case of the cost of funds approach).

Therefore, it is recommended that companies review the transfer pricing documentation of their financial transactions and align the applied methods with the issued guidance, since the Hungarian transfer pricing regulations are substantially built on the OECD Transfer Pricing Guidelines and the Hungarian authority regards them as a starting point in its reasoning.

The COVID-19 pandemic is another deciding factor of 2020. Firstly, it significantly affected business operations with the decentralized operations in the supply chain, loss of the entire value chains, impacted the liquidity and working capital requirements, as well as generated idle capacity of human resources. Secondly, the pandemic situation cannot be regarded as a regular economic crisis, therefore the OECD Transfer Pricing Guidelines’ approaches may not necessarily be applicable to it.

Consequently, when preparing the 2020 transfer pricing documentation particular attention should be paid to the specificity of the economic situation affected by the pandemic.

***

The transfer pricing specialists of VGD Hungary constantly monitor the latest developments and provide effective assistance in the appropriate documenting of the financial transactions, as well as in estimation of the unexpected factors affecting business operations and in adjustment of the 2020 transfer pricing documentation.

Should you have any questions regarding this newsletter, the tax experts of VGD Hungary will be pleased to assist you.