Tax Treaty Case Law around the Globe 2019

S. 1721. Introduction

This case dealt with the transfer pricing of an intra-group loan agreement pursuant to which a Hungarian tax resident group company (hereinafter: the taxpayer) provided funding to an associated Brazilian tax resident company.

The Court annulled the resolution of the second instance tax authority and referred the case back to the level of first instance with regard to the determination of transfer pricing. The tax authority and the taxpayer put forward several approaches as to the application of the comparable uncontrolled prices (hereinafter: CUP) method to substantiate the appropriate arm’s length interest rate. In this chapter, we refer to the initial method of the taxpayer, based on which it prepared its transfer pricing documentation as “first evidence” and to the new method that the taxpayer submitted together with its appeal against the resolution of the first instance tax authority as “second evidence”. The Court based its decision on the opinion of an appointed expert, who highlighted mistakes in the benchmarking used by both the taxpayer and the tax authority, albeit acknowledging that the CUP method could have been appropriate to set the interest rate for th...