“The benefit for companies is a reduced compliance cost and more detailed analysis because of the master file. There is also a benefit for tax authorities as they are in a better position to assess risk,” said Baláza Békés, a partner at Faludi Wolf Theiss in Hungary.

The new documentation requirements consist of two parts. The first is a master file that contains key information on the company group and intra-group transactions. For instance a general description of the group’s business strategy, ownership structure, transactions, related functions and risks. This information is standardised within the EU and describes the groups transfer pricing policies.

The master file is supplemented by a separate local document with details on country and transaction specific data.

Countries around the world are recognising the importance of imposing clear documentation rules and within the EU, compliance with the EU guidelines is becoming more widespread. The review of transfer pricing documentation in Hungary has therefore been a key target area in the auditing practice of the tax authority.

“The benefit [of the documentation] is a better understanding of what a company is doing across the world,” said Békés.

The new documentation requirements come into effect on January 1 2010.