The Curia
as a court of review
judgment
Case number:
Kfv.I.35.343/2022/8.
Members of the Board,
Dr
Huszárné Dr Oláh Éva, Judge-Rapporteur,
Dr.
Mudráné Dr. Láng Erzsébet, Judge,
Dr
Zsoltné Dr Szabó Judit Banu Zsoltné, Judge,
Dr
Csilla Heinemann, Judge
Applicant: Applicant1
(Address2)
Representative of the
applicant: Rátky & Társa Law Office
Address7
Attorney
in charge: name)
Defendant: National Tax and
Customs Board of Appeal
Address1
Defendant's representative:
name1 Bar
Counsel
Subject of the proceedings:
administrative decision in a tax matter
Party requesting the
review: defendant No 6
Number of the decision of
the court of first instance: Judgment of the Metropolitan Court of Budapest No
36.K.700.670/2022/5
Operative part
The judgment of the
Metropolitan Court of Appeal in Case 36.K.700.670/2022/5 is upheld.
Orders the defendant to pay
to the applicant within 15 days HUF 500,000 (five hundred thousand HUF) for the
costs of the review proceedings.
The review procedure fee
shall remain payable by the State.
There shall be no review of
the judgment.
Reason
The facts on which the
review is based
[1] The applicant's
predecessor in title ('the applicant') commenced business on 16 October 2000,
its main declared activity being the trading of gas. The applicant changed
ownership on 1 October 2013, before which it belonged to the E.ON group. The
applicant entered into credit facility agreements with its affiliated companies
in favour of the applicant. Between 20 December 2011 and 1 October 2013, the
applicant entered into an agreement with Company2 and between 18 May 2012 and
28 June 2013 with Company1, under which it benefited from part of the credit
facilities, the remaining part being made available to it. The applicant
prepared transfer pricing documentation for the contracts and determined the
risk spread and the amount of the maintenance fee for the undrawn portions of
the loan transactions using the comparative independent pricing method by
searching the Thomson Reuters LoanConnector database. Using this method, the
applicant narrowed down the data extracted by searching for risk rating, type
of debtor party, date of loan, maturity, transactions with completed status,
and spread/provision fee.
[2] The first-instance tax
authority carried out ex-post audits of returns for all taxes and budget
support for the years 2012-2013, except for VAT for the months of August 2012
and March 2013. During the audit, findings were made for several tax offences,
including transfer pricing in the Tao [Corporate Tax and Dividend Tax] tax
category. In the main proceedings, the tax authority of first instance adopted
the method of comparative prices used in the transfer pricing register and
considered the data of the plaintiffs extracted from the LoanConnector database
as the reference. The differences between the screening steps and the loan
transactions were explained by the tax authority of first instance as a result
of the lack of data available in the database and, due to what it considered to
be unquantifiable deficiencies, the tax authority of first instance narrowed
the data down to the mean value by creating a specific interquartile range. On
this basis, it found a deviation from the normal market price for both the
interest rate spreads and the availability premiums.
[3] In its appeal, the
applicant contested only the findings in respect of the income tax on energy
suppliers and the transfer price. The defendant annulled the decision of the
first instance in the appeal and ordered the first instance authority to initiate
new proceedings. The findings not appealed were considered to be lawful. In the
new procedure, the defendant required it to clarify whether the comparative
pricing methodology used by the applicant, including the filtering steps used
in the database search, was appropriate for the assessment of fees related to
linked credit transactions. The discrepancies could possibly be filtered out by
combining additional parameters with regard to qualitative characteristics.
There is no reason to question the reliability of the sample obtained from the
LoanConnector database.
[4] In the new proceedings,
the tax authority at first instance found that the applicant had carried out a
sufficiently narrow manual (qualitative) screening, solely for the purpose of
exclusion on the basis of data deficiency. However, in the manual filtering
process, it is also possible to narrow down the sample obtained in the database
search by other parameters, and to exclude less comparable data. For
this reason, the first instance tax authority introduced two previously unused
parameters in the manual screening of the database, namely the credit target
affecting the interest rate and the coverage by insurance. Thus, only those
loan transactions that served a general financing purpose and were not insured
were considered comparable. On this basis, it concluded that the interest
spreads paid to related companies deviated from the normal market range by HUF
156,969,000 in 2012 and by HUF 304,313,000 in 2013. However, the availability
commissions paid on undisbursed loans remained within the normal market price
range.
[5] Based on the data from
the additional audit of the new procedure, the first instance tax authority
detected a total of 154,690,000 tax overpayments in the tax categories of Tao
[Corporate Tax and Dividend Tax], VAT, health contribution, social contribution
and income tax on energy suppliers for the period audited. A tax penalty was
imposed on the HUF 154,626,000 tax shortfall and a late payment penalty was
charged. Due to the discrepancy in transfer pricing, the tax base was increased
by HUF 156,969,000 in 2012 and HUF 304,313,000 in 2013, based on Section 18 (1)
(b) of Act LXXXI of 1996 on Corporate Tax and Dividend Tax (hereinafter: Tao
Act). The income tax of energy suppliers also increased due to the change in
the pre-tax result.
[6] By decision No
2234170459, the defendant upheld the decision of the first instance. It
reasoned that the tax authority at first instance had accepted the plaintiff's
method of comparative independent prices for determining the arm's length price
in the repeated proceedings, had not contested the plaintiff's database
filtering steps, but that a further narrowing of the resulting base population
was justified. To this end, it excluded those which were secured or which did
not serve a general financing purpose, having regard to the additional factors
influencing the lending strategy of the financial institutions, such as the
existence of collateral and the purpose of the loan. The defendant submits that
the tax authority at first instance took account of point 3.56 of the OECD
Transfer Pricing Guidelines ('the Guidelines'), which provides that if it can
be determined that some independent transactions have a lower degree of
comparability than others, the former should be excluded.
The application
[7] In its application, the
applicant sought judicial review of the defendant's decision to challenge the
defendant's method of narrowing the transfer pricing according to the credit
objective and thus the increase in pre-tax profit in respect of the Tao
[Corporate Tax and Dividend Tax] and the income tax on energy
suppliers. In support of its position, it attached a private
expert's report and requested the appointment of a forensic expert. He did not
dispute the applicability of the criterion of reduction by coverage.
Judgment of the Court of
First Instance
[8] The Court of First
Instance conducted the forensic expert examination requested by the applicant.
After obtaining the expert's opinion, it ordered that it be supplemented and
then heard the forensic expert. The plaintiff failed to appear at the hearing
of the forensic expert, despite being duly summoned, and the court of first
instance terminated the proceedings on the defendant's application. By order No
Kpkff.I.35.571/2021/2, the Curia, acting as court of appeal, annulled the order
of the court of first instance terminating the proceedings on the ground of
procedural error and ordered the court of first instance to reopen the
proceedings.
[9] In the course of the
new proceedings, the court of first instance, by a final judgment, annulled the
defendant's decision, including the decision of the court of first instance,
and ordered the administrative body of first instance to initiate new
proceedings. The first instance court considered the expert opinion, its
supplement and the hearing together to be without objections and adopted them
as the basis for its judgment. It took into account the expert study submitted
by the applicant as a legal argument.
[10] With reference to
paragraphs [35] and [36] of the judgment of the Curia No. Kfv.I.35.720/2015/8,
the court of first instance described the transfer pricing rules of the Tao
[Corporate Tax and Dividend Tax] Law, the relevant provisions of the
Guidelines, and the tasks of the forensic expert in transfer pricing based on
the decision No. Kfv.I.35.524/2019/11.
[11] It stated that the
supplement to the expert opinion was ordered because, on the one hand, the
forensic expert had not received the complete file and, on the other hand, the
parties had submitted comments. According to the supplemented forensic expert's
opinion, it was found that, in the case of the loans at issue, there was
typically no correlation between interest rates and the purpose of the loans,
and that the proposition that a particular type of loan was associated with a
particular interest rate was therefore not true. The classification according
to credit objectives is a logical assumption on the part of the defendant, but
in reality it does not lead to good results, or even to incorrect results,
because of the unreliability of the information. The applicant has applied an
interest rate which falls within the normal market interest rate range
established by the expert and the defendant's finding is therefore incorrect.
As regards the credit ratings, it took the view that neither the claim of the
defendant nor that of the applicant was correct. During his personal hearing,
he submitted that the reason for the difference between the basic and the
supplemented expert opinion was that he did not have the full file available to
him the first time, only when he was asked for the supplementary expert
opinion. The information on the purpose of the loan is uncertain, which
violates the comparability criterion. According to point [24] of the grounds of
the judgment under appeal, the entire profession omits this information from
the search (purpose of the loan), since this information is often not included
in the databases or is not correctly indicated, and is therefore unreliable. In
the absence of reliability, this information cannot be taken into account, even
though it would make logical sense.
[12] The Court of First
Instance stated that the applicant agreed with the expert's opinion and with
the rejection of the credit limitation. The defendant's view was that the
expert had failed to rebut the validity of the tax authority's finding and that
the expert's opinion contradicted his earlier assertion. He disputed the
unreliability of the credit purpose data. The forensic expert's findings relate
to the Bloomberg database, but the defendant used the LoanConnector database
and included a statement from the database contact. However, the forensic
expert did not provide any evidence to support the reconciliation with the
Bloomberg database contact.
[13] According to paragraph
[35] of the grounds of the final judgment, the defendant relied on the contradictory
nature of the expert's opinion without any basis, given that the expert had
corrected the opinion previously given, which was not complete, and had taken
the necessary investigative steps. During his personal interview, the expert
clarified the reason for the contradiction. The Court of First Instance did not
include in its reasoning those parts of the supplemented expert's opinion - the
debt rating and the recalculation of the normal market interest rate from a new
approach - which, in its assessment, were not causally linked to the questions
raised. It did not attach any relevance to the fact that the forensic expert
had carried out his own database research. As stated in the decision of the
Curia No. Kfv.I.35.524/2019/11, when carrying out an expert examination of
transfer pricing records, it is not the task of the expert to carry out his own
calculation, but to determine whether the plaintiff's records and the
defendant's calculation comply with the law and the Guidelines.
[14] According to the Guidelines
for the new procedure, the first instance authority should repeat the transfer
pricing assessment without the step of narrowing the credit target. The
first-instance authority may then be in a position to make a determination in
relation to the corporate income tax and the energy suppliers' income tax.
Request for review and
counterclaim
[15] In its application for
review, the defendant sought the annulment of the final judgment and an order
that the court of first instance should reopen the proceedings and issue a new
decision. In its opinion, the court of first instance rendered its judgment in
violation of Section 78(2) of Act I of 2017 on the Code of Administrative
Procedure (hereinafter "the Code") and Section 346(5) of Act CXXX of
2016 on the Code of Civil Procedure (hereinafter "the Code") by
misinterpreting the law.
[16] He did not contest the
application of the comparative pricing method. The tax authority of first
instance carried out a manual (qualitative) screening for the existence of
collateral and the purpose of the loan on the basis of data requested from the
plaintiff in the repeated proceedings, which were not yet available in the main
proceedings. The necessary steps were explained by both the first and the
defendant tax authorities. On the basis of the forensic expert's opinion, the
court of first instance questioned the practical feasibility of the
theoretically justified credit purpose narrowing. However, for reasons other
than the lack of evidence and illogicality of extending the claim in respect of
the Bloomberg database to all databases, this is not correct. The Supplementary
Opinion is wrong to find that the tax authority's narrowing was incorrect
because there were loans in the Bloomberg database where more than one loan
purpose was recorded, that some cases where the loan purpose could not be
identified were classified in the general loan purpose category and that there
is typically no correlation between interest rates and loan purposes, that is,
the proposition that a particular type of loan has a specific interest rate is
not true.
[17] In the remainder of
the application for review, the defendant argued in detail that the findings of
the forensic expert were not supported by the Guidelines. In the present case,
the defendant only used the information in the database for exclusion purposes
and did not carry out its own filtering, thus disregarding those where it was
clear that the credit purpose was different from the applicant's credit. For
this reason, the expert's view that by omitting the filtering step, the broader
sample of companies included in the comparison better meets the comparability
requirement cannot be accepted.
[18] One of the errors in
the expert's opinion was also recorded in the reasoning of the judgment, as the
expert also took a position on issues not disputed by the parties, recalculated
the normal market interest rate from a new approach and carried out his own
database research outside the scope of his duties. In this context, however, it
should also be pointed out that the forensic expert did not examine the loans
selected (accepted) or excluded (rejected) by the tax authority from a
comparability point of view at the contract level, but drew conclusions based
on the alleged information from the Bloomberg database, which are not relevant
to the present case. However, in database screening, quantitative screening is
followed by manual (qualitative) screening and only this step is able to
enhance the comparability of the data retrieved from the database. In the
present case, the expert did not perform such filtering steps, he could not perform
them himself from the data collected from the database, so he wanted to justify
the degree of comparability by the unreliability of the data recorded in the
database, but he did not record uncertainty at the level of each identifiable
transaction. In his statement at the hearing of 11 June 2021, he only mentioned
the amount of work and screening, but did not refer to any manual verification.
None of his findings apply to specific loan transactions. This expert
uncertainty was also recorded in the final judgment when he presented the
expert reasons in a conditional mode.
[19] He also referred to
the fact that the judgment of the Curia in Case No Kfv.I.35.524/2019/11 also
criticised the opinion of the forensic expert Sándor Szvicsek, who had been the
expert in the present case.
[20] The defendant
summarily submitted that the forensic expert's opinion was not suitable to
serve as a basis for the decision of the court of first instance. The expert
opinion did not examine the specificity of the selected and excluded
transactions, whether their exclusion or inclusion in the sample was justified,
whether or not there was a different credit purpose between the transactions,
which of them had information and which did not, whether there was a real, not
theoretical, not hypothetical, but concrete reason for the exclusion. The
defendant also argued that since the transfer pricing assessment affects the
assessment made in the energy suppliers' income tax, the request for review
also covers the transfer pricing assessment because of the numerical effect.
[21] In its cross-appeal,
the applicant submitted that the final judgment should be upheld as it complied
with the law. It stressed that the Curia had also ruled in its judgment in Case
No Kfv.I.35.364/2019/6 that a party may challenge the provisions of an expert
opinion in the review proceedings if it has exhausted the procedural options
available to it in the course of the litigation, and that if it has not done
so, it may not do so in an extraordinary appeal. The Curia has already
summarised in several judgments the assessment tasks of the courts of first
instance in relation to the expert opinion. It has referred to the judgments of
the Court of First Instance in Kfv.IV.37.044/2022/8, Kfv.I.35.720/2015/8, Kfv.III.35.233/2015/7.
Decision and legal grounds
of the Curia
[22] The defendant's
application for review is unfounded.
[23] The Court of
Cassation, in its judgment of 22 May 2010 in Kp. 115 (2) of the Kp. § 108 (1)
of the applicable law and § 108 (1) of the Kp. In accordance with § 120 (5) of
the Court of Appeal's decision, the Court reviewed the final judgment in the
context of the application for review on the basis of the documents and
evidence available.
[24] Within multinational
groups of companies, to which the applicant belonged at the material time, it
is expected that their transactions with each other are assessed in relation to
the business activities of independent undertakings and that those independent
transactions and activities are compared with the transactions and activities
of affiliated undertakings. Transfer pricing is a practical application of the
arm's length principle.
[25] The rules on transfer
pricing were also regulated in the period under review by Section 18 of the Tao
[Corporate Tax and Dividend Tax] Law under the heading "Adjustment of
prices between related undertakings", with Section 31(2)(b) stating that
these provisions of the Tao Law are intended to comply with the EU Guidelines
on the adjustment of prices between related undertakings for international
enterprises and tax authorities. The rules on the obligation to keep records in
connection with the determination of the arm's length price itself were laid
down in PM Decree No 22/2009 (X. 16.), which was issued on the basis of the
authorisation of the Tao Law at the time of the proceedings. The EU legislation
as reflected in the Tao Act is/are reflected in the Directives.
[26] A large amount of data
is needed to determine the transfer price. However, the available information
may be incomplete, difficult to interpret, difficult to obtain for reasons of
confidentiality, or may not exist at all, or the relevant independent
enterprise itself may be missing. In the practical application of the arm's
length price principle, the objective is always to determine an acceptable
estimate of arm's length profit based on reliable data. The 'estimated' nature
of the transfer price means that it is never an exact tax act, but requires
both the taxpayer and the tax authorities to subsequently take evidence that is
clearly identifiable and realistic.
The Curia has stated in its
judgment Kfv.I.35.550/2018/12 that the question of transfer pricing can be a
technical question or a purely legal question depending on the underlying
facts. In the case at hand, the defendant transformed the decision into a question
of law by basing its decision not on an examination of the transfer pricing
method, but on a different classification of the underlying legal relationship
from that of the plaintiff in that case. In the present case, the Curia adds
that, in the event of a substantive examination of the transfer pricing method
by the tax authorities, the applicant may also submit a request for evidence on
a technical point in the course of the judicial review.
[27] Among the methods of
transfer pricing, both the Directives and the Tao [Corporate Tax and Dividend
Tax] Law recognise the method of comparative independent prices. Pursuant to
Section 18(2)(a) of the Tao Law, the arm's length price is to be determined by
one of the following methods: the arm's length price method, whereby the arm's
length price is the price that independent parties would apply for the sale of
a comparable asset or service in an economically comparable market. The problem
in applying this method is the identification of the 'economically comparable
market', which is ultimately achieved by applying the correction/constraint
criteria within the scope of the method. Indeed, an independent transaction can
only be compared with a controlled transaction using the method of comparable
independent prices if one of the following two conditions is met: (a) none of
the differences, if any, between the transactions to be compared or between the
undertakings entering into those transactions can materially affect the free
market price, or (b) relatively accurate adjustments can be made to eliminate
the distortive effect of such differences. Therefore, where distorting
differences exist between controlled and unrelated transactions, adjustments
should be made to at least broadly eliminate price influencing factors and
enhance comparability. Each of the narrowing methods should be assessed for
their relative accuracy and only those adjustments should be made that are
likely to improve comparability.
[28] In the case at bar, it
is a fact that the defendant did not make a finding with respect to the
plaintiff's records that the plaintiff had developed what it considered to be
an appropriate transfer price, that the defendant agreed to the use of the
comparative independent pricing method. The court's remedy resulted from a
difference in the criteria considered by the parties to eliminate the
distorting effect of the differences. It may also be noted that in the decision
of the Court of Appeal ordering a new trial in the main proceedings, the
defendant excluded the application of the interquartile range correction
criterion of narrowing the range around the midpoint.
[29] Defendant used the
data extracted by the plaintiff from the LoanConnector database to verify the
transfer pricing. In its procedure, it considered the relevant aspects of the
Directives to be relevant, according to the review request: in the expected
audit practice, tax auditors should be flexible in their approach, take into
account the business considerations of taxpayers and start their analysis from
the perspective of the pricing method chosen by the taxpayer. If the taxpayer's
screening strategy is reproducible and the screening steps are suitable to
produce a suitable sample for the transaction under consideration, the tax
administration will use the taxpayer's database screening as a basis. If, for
any reason, the tax administration disputes the screening steps, it will
attempt to make the necessary adjustments based on the taxpayer's research to
ensure that the results calculated from the improved sample are consistent with
the market price principle. As a starting point, the tax administration does
not therefore seek to determine the price or range of prices applicable to the
transaction in question by rejecting the taxpayer's research. In the present
case, however, the defendant itself, by introducing the screening criteria it
applied - credit purpose, insurance cover - established the price range it
considered necessary for determining the transfer price, which differed from
that of the applicant. Of these, the plaintiff contested the application of the
credit purpose criterion in its action, and the court of first instance gave
final judgment on this point.
[30] The Curia has already
touched upon the fact that the determination of the transfer price is a
technical issue in a given case, which may require the application of the
provisions of the CP in the context of a judicial appeal against the
defendant's decision. In the appeal of a transfer pricing decision, the court
may require the appointment of an expert pursuant to Article 300(1) of the Law
of the Republic of Poland, which is applicable by virtue of Article 78(1): an
expert must be appointed if special expertise is required to determine the
scope of the dispute or to establish or assess a fact of significance in the
proceedings. The Curia agrees with the decision of the court of first instance
which considered the further narrowing of the transfer price according to the
credit purpose when determining the transfer price by the method of comparative
independent prices as a matter requiring the appointment of a forensic expert.
[31] The Curia stated in
paragraph [35] of its judgment in Case No Kfv.I.35.364/2019/6, cited by the
applicant, that a party may challenge the provisions of an expert opinion in
the review proceedings if it has exhausted its procedural options available to
it in the course of the litigation. If the party has not made any comments on
the merits, has not requested to be heard by the expert, has not made any
further requests for evidence within the time limit available to him, it is no
longer possible to make up for this in the extraordinary review procedure. The
submissions made by the defendant in its application for review concerning the
expert's concerns raise the question whether the defendant has exhausted the
procedural remedies available to it in the proceedings at first instance or
whether it wishes to assert its position for the first time in the review
proceedings. It can be established that the defendant made comments on the
basic and supplementary expert opinions, addressed questions to the expert
during the hearing, did not request a rehearing of the expert in the retrial
proceedings despite the request of the court of first instance, and stated
before the end of the hearing that he maintained his previous presentations and
statements. The essential procedural option which the defendant did not
exercise is the possibility to reopen the case in accordance with the
provisions of the Hungarian Civil Code. (1) of Article 315 of the Criminal Code.
However, in view of his previous detailed statements and questions to the
expert, this cannot be attributed to the defendant. There were no procedural
obstacles to the examination of the points raised in the defendant's
application for review.
[32] In the course of the
expert evidence, the parties have the possibility to challenge the person of
the appointed expert according to the rules of Article 301 of the Civil Code on
the exclusion of experts or, as regards competence, according to Act XXIX of 2016
on forensic experts. The defendant did not make such a presentation before the
court of first instance. However, as a consequence of the procedural
requirement set out above, the reference of the application for review to the
decision of the Curia No. Kfv.I.35.524/2019/11 is not suitable to undermine the
validity of the final judgment based on the expert opinion.
[33] The court of first
instance did not take into account the findings of the court of first instance
in the case of the assessment of the The first instance court, acting within
the framework provided for in Articles 307 to 315 of the EC Treaty, invited the
appointed forensic expert to submit a written expert opinion and, following the
written observations of the parties, ordered that the opinion be supplemented
and heard orally at a hearing.
[34] The expert stated in
his basic opinion that the narrowing of the credit purpose ensures that the
main parameters of the transactions are identical, and he applied the same
approach himself. The applicant used the loan for a general purpose,
but included loans for purposes other than that - acquisition of a company,
acquisition, debt repayment, project repayment, purchase of securities - in the
comparison. Plaintiff may have found non-general purpose loans - e.g.
acquisition purpose - in defendant's list of narrowing criteria, but the
databases are not flawless and their data should be treated with caution. The
forensic expert pointed out that the documents he had received did not contain
the plaintiff's or the defendant's evidence or the searches; in the absence of
credit agreements and information, he could not examine the steps of the
defendant's search or the sample he had received.
[35] Following receipt of
the documents, the supplementary forensic expert opinion was prepared in
response to further questions. The expert reiterated that the
purpose of the loan could influence interest rates, but now concluded on the
basis of the documents that, for the loans at issue, there was typically no correlation
between interest rates and loan purposes, i.e. the proposition that a
particular type of loan has a specific interest rate is not true. This may be
explained by the fact that for unsecured loans, the data on the purpose of the
loan is not meaningful, i.e. not reliable. If the criterion would otherwise be
logical, but the information is unreliable, it should be excluded from the
narrowing. Defendant did not conduct a database search, it examined the data
used by Plaintiff. The narrowing by credit purpose was a logical assumption on
Defendant's part, but he could not have known that this information was
unreliable. Elsewhere in the Supplemental Opinion, it was pointed out that if
Defendant had no information about the reliability of certain elements of the
database data, this step would lead to erroneous conclusions. In the
supplemental opinion, the forensic expert performed his own comparative
analysis of the Bloomberg database to determine the transfer price and
recalculated it.
[36] During the hearing,
the expert confirmed that the complete file was only available to him at the
time of the supplementary opinion. They made it clear why the search by credit
purpose was so important for the present case.
[37] In the final judgment,
the court of first instance set out the elements of the written and oral
supplementary expert opinion which it considered relevant, as well as the
observations of the parties to the proceedings. It also pointed out that the
forensic expert had identified in his supplementary expert opinion several
issues which were not disputed between the parties, such as the debt rating and
the recalculation of the normal market interest rate from a new approach. It is
irrelevant that the expert carried out and calculated his own database
research. The trial court did not take these parts of the expert's opinion into
account. On the relevant issues, it stated that it considered the written and
oral additions to be of no concern because the documents were only then fully
available to the expert.
[38] The fact that the
forensic expert used the Bloomberg database when preparing the supplementary
expert opinion - a matter of his own database research - and the fact that he
made calculations on the basis of that database was considered by the trial
court to be irrelevant. As a consequence, the Curia did not analyse the merits
of the review request's presentations on this database and the issue of
contact. The Curia stresses here that, as can be identified from the
supplementary expert opinion, the forensic expert, on the basis of the
documents sent, understood the "database" and "data collected
from the database" referred to in the request for review as the data taken
into account by the defendant in the case of the credit target as a screening
criterion. A related finding is that the defendant did not carry out its own
database search, but examined the data used by the applicant. This is otherwise
consistent with the procedure under the Guidelines, as set out in paragraph
[29], which the defendant's reviewer considered to be correct.
[39] The Court of Appeal
noted that the court of first instance had described the expert's statement in
paragraph [24] of the final judgment concerning the uncertainty of the credit
target as general. However, it is clear from the record of the hearing, which
contains the expert's oral testimony, that this is primarily a reference to
information extracted from documents received subsequently. The fact that,
according to the subsequent presentation, the same applies to the data from the
Bloomberg database is not a basis for drawing a conclusion, since the use of
the Bloomberg database and the calculations based on it were - correctly -
classified by the court of first instance as irrelevant and their examination on
the merits was rejected.
[40] The combined
assessment of the basic expert report, the supplementary expert reports and the
oral supplement shows that the judicial expert did not reject the credit
limitation in general when applying the method of comparative independent
prices, but considered that the correction was unreliable on the basis of the
specific documents, for the specific contracts, in the context of the combined
application of the other criterion of coverage by insurance not at issue in the
proceedings.
[41] In its assessment of
the content of the expert evidence, the Curia found that the relevant elements
of the evidence had been correctly summarised by the court of first instance
and that, in applying the method of comparative independent prices, it was not
appropriate to apply a reduction for the purpose of the loan, particularly in
the case at issue, because that criterion was unreliable. The defendant's
submissions disputing this in its application for review are unfounded. The
final judgment is not vitiated by a manifestly unreasonable assessment of the
evidence or by an error of assessment contrary to the rules of logic.
[42] In view of the
foregoing, the Curia has set aside the final judgment of the Court of Cassation
and Justice. 121 (2), with the above-mentioned clarification of the reasoning
concerning the Bloomberg database.
Content of the decision in
principle
[43] An independent
transaction may be compared with a controlled transaction by the method of
comparable independent prices only if (a) none of the differences, if any,
between the transactions to be compared or between the undertakings entering
into those transactions is likely to affect the open market price materially,
or (b) relatively accurate adjustments can be made to eliminate the distortive
effect of such differences. Each of the narrowing methods should be assessed
for their relative accuracy and only those adjustments should be made which are
likely to improve comparability. An unreliable correction criterion should not
be applied.
[44] If the transfer
pricing method is examined on the merits by the tax authorities, it may be
subject to a motion for a ruling on a technical point of law by the plaintiff
in the course of the judicial review.
[45] Whether a party to an
administrative action at first instance has exhausted its procedural options as
regards expert evidence must always be determined by assessing all the
procedural steps taken together.
[46] Even in the case of a
judgment based on a forensic expert's opinion, the court must be required to
treat it as not giving rise to any concern, without that concern leading to a
manifestly unreasonable assessment of the evidence which is contrary to the
rules of logic.
Concluding part
[47] The Court of Cassation
found the defendant to be in breach of the principle of proportionality. 35.§
(1) of the Hungarian Civil Code, which is applicable by virtue of Art. 83(1) of
the Code of Civil Procedure, the Court ordered the successful plaintiff to pay
the costs of the review.
[48] The review procedure
fee not charged by virtue of the right to record the relevant fee was charged
to the defendant in view of the personal exemption from the fee pursuant to
Section 5(1)(c) of Act XCIII of 1990 on Fees. 35.§ (1) of the Pp. 102.§ (6)
shall remain the responsibility of the State.
[49] The application for
review was examined by the Curia at a hearing on the applicant's motion.
[50] The possibility of a
review against the judgment is provided for in the Kp. 116(d) of the judgment.
Budapest, 10 November 2022.
Dr. Péter Hajnal s.k.
President of the Chamber
Ms Huszárné Dr. Oláh Éva
s.k. Ms Mudráné Dr. Láng Erzsébet s.k.
Rapporteur
Judge
Dr
Zsoltné Dr Szabó Judit s.k. Dr Heinemann Csilla s.k.