Author: Courts of Hungary

Hungary vs “Gas-Trader KtF”, November 2022, Supreme Administrative Court, Case no Kfv.I.35.343/2022/8

Hungary vs "Gas-Trader KtF", November 2022, Supreme Administrative Court, Case no Kfv.I.35.343/2022/8
“Gas-Trader KtF” – a subsidiary in the E.ON group – had entered into loan agreements with other group companies and the related parties had determined the interest rate by application of the CUP method using the Thomson Reuters LoanConnector database. Comparable transactions was extracted from the database by searching for credit rating, type of debtor party, date of loan, maturity, transactions with completed status, and spread/provision fee. An audit was conducted by the tax authorities for FY 2012-2013 and the interest rate determined by the group was found to be incompliant with the arm’s length principle. The tax authorities applied the same method as Gas-Trader but added further search criteria in the selection of comparable transactions – credit purpose and insurance coverage. This resulted in a different range and an assessment of additional taxable income was issued. An appeal was filed by Gas-Trader KtF with ... Read more

Hungary vs “Meat Processing KtF” August 2022, case no K.700777/2022/18 (6-KJ-2022-786)

Hungary vs "Meat Processing KtF" August 2022, case no K.700777/2022/18 (6-KJ-2022-786)
Meat Processing KtF recorded “advance receivables” from related companies in FY 2016. The tax authority found that the invoices received by Meat Processing KtF did not contain any reference to the advance payment, the creation and repayment of the receivables were not linked to the ordering or receipt of specific goods, the payment and repayment of the “advances” had no connection with the value and purchase date of the goods purchased, the value and opening balance of the advances in 2016 and the amount deducted from the receivables exceeded the purchases made from the partner in 2016. The advance receivables were paid by bank transfers. At the beginning of 2016, Meat Processing KtF reclassified an item as an advance payment which was still recorded as a loan in its accounts at the end of 2015. Meat Processing KtF recognised an impairment loss on the advances ... Read more

Hungary vs G.K. Ktf, December 2021, Court of Appeals, Case No. Kfv.V.35.306/2021/9

Hungary vs G.K. Ktf, December 2021, Court of Appeals, Case No. Kfv.V.35.306/2021/9
G.K. Ktf was a subsidiary of a company registered in the United Kingdom. On 29 December 2010 G.K. Ktf entered into a loan agreement with a Dutch affiliate, G.B. BV, under which G.B. BV, as lender, granted a subordinated unsecured loan of HUF 3 billion to G.K. Ktf. Interest was set at a fixed annual rate of 11.32%, but interest was only payable when G.K. Ktf earned a ‘net income’ from its activities. The maturity date of the loan was 2060. The loan was used by G.K. Ktf to repay a debt under a loan agreement concluded with a Dutch bank in 2006. The bank loan was repaid in 2017/2018. The interest paid by G.K. Ktf under the contract was deducted as an expense of HUF 347,146,667 in 2011 and HUF 345,260,000 in 2012. But, in accordance with Dutch tax law – the so called ... Read more

Hungary vs VSSB V. Service Center Budapest Zrt., December 2021, Court of Appeals, Case No. Kfv.V.35.184/2021/16

Hungary vs VSSB V. Service Center Budapest Zrt., December 2021, Court of Appeals, Case No. Kfv.V.35.184/2021/16
The VSSB Group provided liquidity to the group members by means of a cash-pool. Under the cash pool agreement, short-term and longer-term multi-currency financing transactions were carried out, including the applicant as a member of the group; the intermediary was the group member VSSB V. Service Center Budapest Zrt. (‘VSSB’). At the end of each month, the balances of the group members’ short positions (cash pool) with monthly settlement were transferred to the long term loan between the holding company, VSSB Group Plc. The members of the cash pool have either been continuously depositing funds or drawing on funds within the group. The Hungarian Service Center only deposited funds throughout the period under examination and had received a fixed rate of interest on the deposits. The funds deposited by the members of the group were transferred to the main account of the VSSB Group and ... Read more

Hungary vs “Stream-Heat”, May 2021, Court of Appeals – Curia, Case No. Kfv.I. 35.174/2021/7

Hungary vs "Stream-Heat", May 2021, Court of Appeals - Curia, Case No. Kfv.I. 35.174/2021/7
“Stream-Heat” is active in the production of steam, heat and electricity, which it sells to its parent company on a cost recovery basis. By agreement between the parent company and Stream-Heat, the consideration for the supply of energy was fixed in the form of a RÁD (availability fee) and an energy fee. Stream-Heat’s results for 2017 were affected by the outcome of the administrative lawsuit and the subsequent Courts review of the findings for 2013. According to the decision in relation to the assessment paid by Stream-Heat to the tax authority on the basis of the final decision, Stream-Heat included the refund in other income for the year and as income from taxes on profits, which resulted in a profit in the applicant’s taxable result, compared to losses in previous years. In order to settle the payment obligation arising from the previous proceedings, Stream-Heat entered ... Read more

Hungary vs “GW Logistics”, March 2021, Appeals Court Curia, Case No. Kfv.I.35.320/2020/6

Hungary vs "GW Logistics", March 2021, Appeals Court Curia, Case No. Kfv.I.35.320/2020/6
GW Logistics was engaged in the activity of transport management (shipping and Logistics) and a member og the German Gebrüder Weiss Group. The tax authorities carried out an audit of the tax returns for the years 2010-2011 and increased GW Logistics’s taxable profit by HUF 189 159 000 for 2010 and by HUF 53 373 000 for 2011, because of the difference between the consideration paid by the applicant for related party transactions and the open market price. Since GW Logistics had not prepared transfer pricing documentation for its maritime transport activities in 2010 and 2011, the tax authority imposed a default fine of HUF 1 500 000. The tax authority applied the TNMM method to determine the arm’s length profitability. In the course of the audit, the tax authority informed GW Logistics that the data provided were not suitable for obtaining transaction-level profitability information ... Read more

Hungary vs “Auto Parts Ktf”, May 2020, Supreme Court (Kúria), Case No. Kfv.I. 35,618 / 2019/11

Hungary vs "Auto Parts Ktf", May 2020, Supreme Court (Kúria), Case No. Kfv.I. 35,618 / 2019/11
Auto Parts Ktf’s principal activity is the manufacture and sale of passenger cars and spare parts. Between 1 January 2013 and 31 December 2014, it sold its products to its affiliated undertakings and to unrelated parties. Auto Parts Ktf had prepared transfer pricing documentation, in which it determined the arm’s length price using the transaction net margin method (TNMM). Auto Parts Ktf identified 9 comparable companies for 2013 based on a benchmark using the Amadeus database version of 17 April 2014, and based on the financial documents of these companies for 2010-2012, it defined the interquartile range of the normal price range as the market price range between 2.13% and 9.78%. For 2014, it did not update its benchmark, but fixed the minimum-maximum range as in 2013 and considered this as the market price range. For both years, the applicant examined the total operating profit ... Read more

Hungary vs “Lender” Kft, February 2020, Budapest Administrative Court, Case No. 16.K.33.691/2019/18

Hungary vs "Lender" Kft, February 2020, Budapest Administrative Court, Case No. 16.K.33.691/2019/18
In 2008 Lender Kft. entered into a loan agreement with its foreign domiciled affiliated company Kft. 1. According to the terms of the contract, the loan amounted to 53,174,516, the maturity date of the loan was 31 January 2013 and the interest was paid semi-annually at the semi-annual CDI rate fixed in the contract plus 200 basis points per annum. In the years 2009-2011, Kft. 1 paid 15 % of the interest as withholding tax, and Lender Kft. received 85 % of the interest. In its books, Lender Kft. entered 100 % of the interest as income, while the 15 % withholding tax was recorded as other expenses. According to Lender Kft’s transfer pricing records, the normal market interest rate range was 8,703 % to 10,821 % in FY 2009, 10,704 % to 12,598 % in the FY 2010 and 10,704 % to 12,598 % ... Read more

Hungary vs Vodafone, May 2015, Appeals Court Curia No. Kfv. I. 35.550/2018/12

Hungary vs Vodafone, May 2015, Appeals Court Curia No. Kfv. I. 35.550/2018/12
The Vodafone group provided liquidity to group members using a cash pool. The balance of the group members’ short positions settled on a monthly basis was transferred to Vodafone Plc at the end of each month. (hereinafter: the Parent Company) in the main account for a long term loan between the Parent Company and the respective member company. As a member of the cash pool, Vodafone Hungary also continuously deposited funds into the main account of the Vodafone Plc and received funds from the main account. Vodafone Hungary’s transactions were partly short-term (up to 1 month) and partly long-term position payments. Some transactions were classified as “deposits” in the transfer pricing register. Press release from the Court (Curia), December 2019 “Depending on the underlying facts, the issue of transfer pricing may be a technical issue and may be a purely legal issue. The subject of ... Read more

Hungary vs “APA Ktf”, October 2019, Court of Appeals, Case No. Kfv.I.35.504/2018/6

Hungary vs "APA Ktf", October 2019, Court of Appeals, Case No. Kfv.I.35.504/2018/6
The tax authority had set the price range for “APA Ktf’s” request for an advance pricing arrangement (APA) at 12.50 to 22.50 basis points. According to the tax authorities, it follows from points 3.61 and 3.62 of the Guidelines that it is only appropriate to adjust the arm’s length price for such transactions to a level close to the mid-point of the range if there is a comparability gap. In the present case, however, it had not been established that there are any shortcomings in comparability, so the first turn of paragraph 3.62 applies: any point in the range, including the mid-point, is in accordance with the arm’s length principle. Judgement of the Court of Appeal. The Court of Appeal pointed out that the applicant had applied for the determination of the normal market price under Article 132/B of the Art. “[37]Defendant [tax authorities] argued ... Read more

Hungary vs “Auto Parts Ktf”, May 2019, Administrative Court, Case No. 1.K.27.084 / 2019

Hungary vs "Auto Parts Ktf", May 2019, Administrative Court, Case No. 1.K.27.084 / 2019
Auto Parts Ktf’s principal activity is the manufacture and sale of passenger cars and spare parts. Between 1 January 2013 and 31 December 2014, it sold its products to its affiliated undertakings and to unrelated parties. Auto Parts Ktf had prepared transfer pricing documentation, in which it determined the arm’s length price using the transaction net margin method (TNMM). Auto Parts Ktf identified 9 comparable companies for 2013 based on a benchmark using the Amadeus database version of 17 April 2014, and based on the financial documents of these companies for 2010-2012, it defined the interquartile range of the normal price range as the market price range between 2.13% and 9.78%. For 2014, it did not update its benchmark, but fixed the minimum-maximum range as in 2013 and considered this as the market price range. For both years, the applicant examined the total operating profit ... Read more

Hungary vs “Seeds Kft”, September 2018, Supreme Administrative Court, Curia No. Kfv. VI. 35.585/2017

Hungary vs "Seeds Kft", September 2018, Supreme Administrative Court, Curia No. Kfv. VI. 35.585/2017
The Hungarian tax office had carried out an an audit of “Seeds Kft” – a group company engaged in the trade in cereals and oilseeds – in relation to accounting for commodity futures. In the assessment decision, the tax office emphasized that the economic substance of the given transaction and the purpose to be achieved by the transaction are relevant. Clearing transactions are not settled by the delivery of the underlying commodities of the transaction and the payment of the forward price, but by financial settlement of the difference between the market price of the commodity and the forward price. With regard to the transfer pricing documentation, the tax office agreed with the pricing method chosen by Seeds Kft but found the application thereof arbitrary and therefore not resulting in establishment of a market price. The Court of First Instance found the tax office’s claim ... Read more

Hungary vs Trademark Ltd, May 2015, Appeals Court Curia No. Kfv. I. 35.774/2014

Hungary vs Trademark Ltd, May 2015, Appeals Court Curia No. Kfv. I. 35.774/2014
The Hungarian company “Trademark Ltd” was involved in distribution of trademark rights. Trademark Ltd obtained the trademark rights from affiliated companies in Luxembourg and Barbados and then also passed trademark rights on to other affiliated company. For the purpose of determining the remuneration, only one company in the group had a transfer price record. According to this, the basis for calculating the remuneration was the turnover achieved. The tax authorities examined the nature of the prices charged between the parties and found that they were not the normal market price. The consideration for the trademark rights was therefore assessed by applying a weighted average cost of capital to the net profit margin. For FY 2006 this rate was set at 12% applied at the group level. On that basis, the amount of the trademark payments was reduced, thereby increasing the tax base of Trademark Ltd ... Read more