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Global transfer pricing guide

Transfer pricing - Hungary

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Introduction to Hungarian transfer pricing
Transfer pricing rules

The Hungarian transfer pricing (TP) legislation is in Act LXXXI of 1996 on Corporate Tax and Dividend Tax, Section 18 (hereinafter referred CIT), in different Decrees, as well as in the Double Tax Treaties.

The Decree 32/2017. (X. 18.) of the Ministry of National Economy (hereinafter referred to as 'Decree 32/2017' or 'Decree') provides for the methods of transfer pricing documentation and formal requirements associated with the determination of arm’s length price. The rules are fairly formulaic and also provides principles.

Double Tax Treaties define the place of taxation of the concerned entities.

The TP rules apply to HU taxpayers and there is a self-assessment regime, ie the onus is on the taxpayer to confirm its transfer pricing meets the standard or to adjust its tax return accordingly.

According to the Decree on transfer pricing documentation requirements, a company is obliged to prepare transfer pricing documentation if it had transactions with related parties within the given tax year. TP documentation has to be in place on the date a corporate income-tax return is filed.

The OECD’s Master File and Local File concept is regarded as best practice. In addition, for larger groups (over €750m) the HU has implemented CbCR (Country by Country Reporting).

The details of APA request can be found in Decree No. 465/2017 (XII.28. issued by the Government.

Concerning the recent law changes transfer pricing rules shall be applied in the event of a capital increase as a result of contribution in kind provided by a shareholder, who prior to the contribution, did not have majority ownership in the company, but acquires majority ownership through the contribution. The application of transfer pricing rules is also required in case of repurchasing of own shares, or transfer of such shares free of charge.

OECD guidance

Hungarian transfer pricing rules have been prepared in harmony with OECD Guidelines, acknowledging that the arm’s length principle is the international transfer pricing standard to be used. The legislation contains an explicit reference to OECD.

Transfer pricing methods

The most appropriate pricing method should be selected. Hungarian methods rely on OECD guidelines: the comparable uncontrolled price, resale price, cost plus, transactional net margin, and profit split methods and other methods are accepted when the chosen method is in line with the functional and risk profile of the entity.

There is a written hierarchy between the methods: other methods shall be used after the comparable uncontrolled price method has been eliminated.


As most of the Hungarian taxes transfer pricing related payments are levied by self-assessment. Companies must file the return and make any payment by the due date, without waiting for a formal assessment. Hungarian authority requires taxpayers to make computational adjustments in cases where transactions, as recorded in the statutory accounts, are not on an arm’s length basis.

Transfer pricing documentation
Preparation of transfer pricing documentation

Hungary adopted the OECD’s transfer pricing documentation model based on the Master File and Local File (BEPS Action 13) approach and it is considered best practice in Hungary. The content of the master and local file is exactly defined in the Decree.

The deadline for the preparation of the local file is the filing date of the corporate tax return (generally May 31st).

If certain conditions are met, the administrative burden could be reduced: (1) taxpayer may prepare simplified documentation for low value-adding intragroup transactions (exact list of services and other limitations are defined in the Decree) (2) Company may examine the possibility of consolidating transactions.

TP documentation and supporting documentation may be compiled in languages other than Hungarian.

Amendment of TP documentation is limited. Based on the Decree modification is possible when (1) documentation does not comply with the legislation (2) Identified error relates to the amount of tax, to the tax base, to the arm’s length price/range. But those parts where the taxpayer has previously used the choices provided by regulations shall not be amended (ie selection of method).

Master and local file

There is an explicit list of expected content for Master and HU Local File defined in Decree: basically, follows the documentation structure defined by OECD, but the Decree specifies some additional requirements which shall be met.

The deadline for the preparation of the local file is the filing date of the corporate tax return (generally 31 May). The deadline for the preparation of a master file is adjusted to the ultimate parent company, but 12 months at the latest after the last day of the tax year.

TP documentation and supporting documentation may be compiled in languages other than Hungarian.

Some risk factors for challenge

The increasing number of TP related tax audits demonstrate the risk of TP provisions. The tax authority is more prepared and uses international databases for audits. Documentation does not have to be submitted to the tax authority, it should be provided upon request, and the tax authority must have to prove if it is not adequate.

The tax authority annually publishes the tax audit guidance including the industries that are the focus of TP audits that year.

The taxpayers that generate losses on a notorious basis (and optionally do not pay tax after minimum profit) and/or have intercompany service charges with proportionally high value can expect tax audits with higher probability.

There is a limitation of rules/guidance of domestic legislation (1) do not provide TP rules or special measures regarding hard to value intangibles (HTVI) (2) do not guide how to price intangibles (3) no regulation on cost contribution agreements.


In cases where the tax authority finds any deficiency tax penalty and late payment interest might be due in accordance with general rules of Hungarian taxation.

Penalties for non-compliance (1) Missing or incomplete master or local file: up to HUF 2 million per (consolidated) documentation, in case of repeated violation up to HUF 4 million, further repeated violation up to HUF 8 million (2) In the case of delayed, incorrect or incomplete fulfilment of CbC reports the fine is up to HUF 20 million. (3) Consequences of failure to register related party (if it is a new business partner) with the tax authority up to HUF 500.000.

Penalties regarding tax underpayment (1) A 50 percent tax penalty can be charged on the additional tax payable (2) late payment interest can also be charged.

Economic analysis and how to demonstrate an arm’s length result

Comparability analysis is barely regulated, OECD Guidelines must be followed. The comparative analysis must be conducted and executed in a way that it could be reproduced by the tax authority. Domestic practice prefers local comparable data. Secondly, if the reliability of Hungarian comparable data is not sufficient enough, sources from the different geographical regions could be accepted as well.

The arm’s length price range for low added value intra-group services is 3-7%.

Usage of statistical measure and interquartile range: (1) if a publicly available database is used during the data collection, (2) the analysis takes into account the data of at least 10 comparable companies for at least three fiscal years or more than 30 observations or when the minimum-maximum range of the comparable sample exceeds 15 percentage points.

If considered justified (having regard in particular to functionality analysis, sample composition, or extreme values), the taxpayer shall apply additional filters relying on the interquartile range.

Interquartile range is not needed if all elements of the sample are equally comparable and the comparability analysis is documented.

The database filtering shall be repeated at least in every three years, but in the interim years, it is sufficient to update only the financial data of the enterprises considered to be comparable.

CIT defines the cases when profit before taxation shall be modified by TP adjustment: it is required if the price used between related parties based on their agreement is lower or higher than the consideration used by independent parties within comparative conditions (there are additional rules if related party considered to be a CFC).

Advance Pricing Agreements (APAs), dispute avoidance and resolution

Advanced Pricing Agreement (APA) is a written transfer pricing guidance from the National Tax and Customs Administration on how to handle a particular intercompany transaction. The result of the APA process is valid for a period of three to five years (with a possible extension for a further three years). As long as the taxpayer complies with the APA, the taxpayer’s transfer pricing will be considered arm’s length.

The process could starts (1) with a professional consultation with tax authority (2) with filing a formal request. The tax authority can manage unilateral, bilateral or multilateral agreements. The decision on whether the application is successful is expected to take up to 120 days.

There is a charge for APAs. The amount depends the complexity of the procedure.

The rules are included in Act CL of 2017 on taxation.


There are some cases when the taxpayer has no liability for preparing TP documentation (1) the transaction was made based on an agreement with an individual, (2) the enterprise is considered small-sized, (3) medium-sized companies for certain transactions, (4) APA covers the transaction, (5) free cash transfer. (6) cost recharges, if the seller or party bearing the cost is not related enterprise, (7) transactions performed on the stock exchange and fixed price specified by law. (8) the taxpayer is a public-benefit nonprofit business association (9) the taxpayers in which the State has majority control – whether directly or indirectly.

There are exemptions based on the arm’s length value of the transaction: value does not reach (net) HUF 50 million within the tax year. The contracts which may be consolidated are to be considered together. The Decree determines the conversion process of currency differs from HUF.

For intercompany transactions between members of a Corporate Taxpayer Group, following the establishment of such a Group (The opportunity to create a Corporate Taxpayer Group for corporate income tax purposes is available for Hungarian resident taxpayers from 1 January 2019).

Related developments
Digital services tax

Act XXII of 2014 on Advertisement Tax of Hungary (hereinafter referred digital service tax or DST) only tax on revenues from online advertising. It is relevant to businesses that generate revenues of at least HUF 100 million.

The tax rate is 7.5 percent (although temporarily reduced to 0 percent effective from 1 July 2019 through 31 December 2022).

Tax authority and taxpayer behaviour

Documentation does not have to be submitted to the tax authority, it should be provided upon request.

A tax authority audit can be started at any time and may apply to any tax year in accordance with the statutory period of limitations. The tax auditors generally make field visits. TP documentation is also part of the initial information package transmitted electronically to the authority. The examination could last several weeks.

The tax authority will issue minutes on its findings. The taxpayer has the opportunity to defend its own position.


The pandemic will have effects on TP documentation. The company which claiming losses needs special and more detailed analysis to ensure arm’s lengths prices. It will be hard to find comparable uncontrolled transactions with similar circumstances especially in relation to several years.

For further information on transfer pricing in Hungary please contact:

Gábor Szarka.png

Gábor Szarka
T +36 (30) 415 1570