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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 master and local file is exactly defined in the Decree.
  • The deadline for the preparation of local file is the filing date of the corporate tax return (generally May 31st).
  • If certain condition are met, 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 part where the taxpayer has previously used the choices provided by regulations shall not be amended (ie selection of method).
  • The usual standard market (arm’s length) price and the method used to determine it, as well as the facts and circumstances supporting it, until the declaration is submitted, are supplemented by the obligation to provide data to the state tax and customs authorities. Taxpayers subject to the transfer price registration obligation will also be required to provide data in their corporate tax return in connection with the determination of the standard market price. The exact content of the data provision will be regulated by the Minister responsible for tax policy in the amended transfer pricing regulation, which is expected in the last months of 2022. The obligation to provide data related to transfer pricing arises for the first time in returns submitted after December 31, 2022.
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 local file is the filing date of the corporate tax return (generally May 31st). Deadline for the preparation of 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
  • Due to the new transfer pricing declaration obligation in our view, it may be worthwhile to examine where the currently applied pricing or profit is compared to the normal market range even before the annual accounting close. In practice, this means that the necessary database research should not be conducted afterwards, in the weeks before the submission of the corporate tax return, but much earlier than before, so that the pricing or profit can still be changed in light of the results obtained. In fact, the related parties involved can settle the necessary adjustment - instead of paying a large amount of tax - with a simple contract amendment.
  • The increasing number of TP related tax audits demonstrate the risk of TP provisions. Tax authority is more prepared and use international databases for audits. Documentation does not have to be submitted to the tax authority, it should be provided upon request and tax authority must have to prove if it is not adequate.
  • Tax authority annually publish the tax audit guidance including the industries that are the focus of TP audits that year.
  • The taxpayers that generate losses on notorious basis (and optionally do not pay tax after minimum profit) and/or have intercompany service charges with proportionally high value can expect tax audit 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 case 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) According to the amendment to the legislation, instead of two million forints, the default fine could be up to HUF 5 million, and for repeated violations up to HUF 10 million per (consolidated) documentation. In order to increase the dissuasive nature of the default fine, the legislator prescribed a higher rate, which is in line with the tax liability. (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. 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 are not sufficient enough, sources from different geographical region 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.
  • The regulation on the use of the interquartile range is renewed. According to the new rules all taxpayers will be required to determine the interquartile range, regardless of whether they are involved in the preparation of transfer pricing documentation. According to the amendment, the
    interquartile range must be used if the transfer price methods are applied taking into account the data stored in a public database or that can be verified by the tax authority for the comparable product, service or enterprise. The definition of the interquartile range remains unchanged, i.e. the middle range in which half of the sample elements fall must be used. 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).
  • The transfer price adjustment must be made to the median value instead of the lower quartile, therefore if the applied consideration is within the normal market range, there is no room for transfer price adjustment, the consideration is considered to be the normal market price. If the applied consideration is outside the normal market range, then as a general rule, the median must and can only be taken into account as the normal market price, the transfer price adjustment must be made to this point. An exception to this is if the taxpayer proves that a value other than the median within the range best corresponds to the examined transaction, in which case it must be adjusted to this value instead of the median. The provisions defining the amended interquartile rule and the adjustment point, as well as the additional rules to be amended in connection with these changes must be applied for the first time when determining the payable tax for the tax year starting in 2022.
Advance Pricing Agreements (APAs), dispute avoidance and resolution
  • Advanced Pricing Agreement (APA) is a written transfer pricing guidance from National Tax and Customs Administration how to handle a particular intercompany transaction. The result of APA process is valid for a period of minimum 3 maximum 5 years (with a possible extension for further three years). As long as the taxpayer comply 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 filling 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 charge for APA as of 2022. The fee for the procedure to determine the normal market price is HUF 5 million in a unilateral procedure, and HUF 8 million in a bilateral or multilateral procedure. Payment in installments or deferred payment is not permitted.
  • 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 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 stock exchange and fixed price specified by law. (8) taxpayer is 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 July 1, 2019 through December 31, 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