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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 to as Act on 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 provide principles.
  • Double tax treaties determine the place of taxation of the entities concerned.
  • The TP rules apply to Hungarian taxpayers and there is a self-assessment regime, i.e. the onus is on the taxpayer to confirm its transfer pricing complies with 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 and the net transaction value calculated at market price exceeds HUF 100 million (approximately EUR 270-280 thousand). The TP documentation has to be available at the time of filing the corporate income tax return.
  • Hungary has implemented the three-tiered documentation approach described in the OECD Guidelines, i.e. the transfer pricing documentation consists of the Master File, the Local File(s) and for larger groups with a total consolidated group turnover of EUR 750 million or more, the Country-by-Country Report ('CbCR').
  • The details of the APA request can be found in Decree No. 465/2017 (XII. 28.) issued by the Government.
  • With regard to the recent law changes, transfer pricing rules shall be applied in the event of a capital increase as a result of a contribution in kind provided by a shareholder, who, prior to the contribution, did not hold a majority interest in the company, but acquires a majority interest as a result of the contribution. The application of transfer pricing rules is also required in case of the repurchase of treasury shares, or the transfer of such shares free of charge.
OECD guidance
  • The Hungarian transfer pricing regulation has been prepared in line with the OECD Guidelines, recognising that the arm’s length principle is the international transfer pricing standard to be applied. The legislation contains an explicit reference to the OECD.
Transfer pricing methods
  • Neither the OECD Guidelines nor the Hungarian regulations establish a strict hierarchy among the accepted transfer pricing methods, but they do encourage the use of the method that is deemed to be the most appropriate for determining the arm’s length price taking into account all economic circumstances. The Hungarian methods are in line with the OECD Guidelines: the comparable uncontrolled price method, the resale price method, the cost plus method, the transactional net margin method, the profit split method and other methods are accepted if the chosen method is consistent with the functional and risk profile of the company.
  • As most of the Hungarian taxes, transfer pricing related payments are levied on a self-assessment basis. Companies must file the return and make any payments by the due date, without waiting for a formal assessment. The Hungarian tax 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 has adopted the OECD’s transfer pricing documentation model based on the Master File and Local File approach (BEPS Action 13), which is considered best practice in Hungary. The content of the Master File and Local File is specified in the Decree.
  • The deadline for the preparation of the Local File is the filing date of the corporate tax return (generally 31 May).
  • If certain conditions are met, the administrative burden could be reduced: (1) the taxpayer may prepare simplified documentation for low value-added intra-group transactions (the exact list of services and other limitations are defined in the Decree) (2) the company may examine the possibility of consolidating transactions.
  • TP documentation and supporting documents may be prepared in languages other than Hungarian.
  • Amendments to TP documentation are limited. Based on the Decree, amendments are possible if (1) the documentation does not comply with the legislation (2) the identified error relates to the amount of tax, the tax base, or the arm’s length price/range. However, the part, where the taxpayer has previously used the options provided by the regulations shall not be amended (i.e. the selection of method).
  • Please note that all annual corporate income tax returns filed after December 31, 2022 (for which the statutory deadline is after December 31, 2022) are subject to the transfer pricing reporting obligation.
    • Pursuant to Section 18 (5) of the Act on CIT, companies, associations, European joint stock companies, cooperatives, European cooperatives and foreign entrepreneurs (with the exception of non-profit public benefit companies and taxpayers in which the State directly or indirectly holds a majority interest) that are not considered small enterprises on the last day of the tax year have to provide the Hungarian tax authority with information on the arm’s length price, the method used to determine it, and the facts and circumstances that support it (e.g. the most specific NACE code of the transaction under review, the accounting standard based on which the profitability index or the royalty fee was calculated) in their annual corporate income tax return, as specified in the Decree 32/2017. Please note that all annual corporate income tax returns filed after December 31, 2022 (for which the statutory deadline is after 31 December 2022) are subject to the transfer pricing reporting obligation.
    • Further to the above, the taxpayers have to classify their intercompany transactions as follows:
      1. toll manufacturing  
      2. use of toll manufacturing
      3. contract manufacturing
      4. use of contract manufacturing
      5. contract manufacturing or limited risk manufacturing with invoicing to an affiliated enterprise other than the contracting entity
      6. contract or limited risk manufacturing with invoicing to an independent party 
      7. agent distribution
      8. use of agent distribution
      9. distribution on a commission basis
      10. use of distribution on a commission basis
      11. limited risk distribution
      12. use of limited risk distribution
      13. provision of a service where the service provider bears a limited risk in relation to the service and can therefore be characterised as routine entity in relation to the service 
      14. use of a service where the service provider bears a limited risk in relation to the service and can therefore be characterised as routine entity in relation to the service
      15. provision of a service where the service provider bears an unconstrained risk in relation to the service and can therefore be characterised as a contractor or co-contractor entity in relation to the service
      16. use of a service where the service provider bears an unconstrained risk in relation to the service and can therefore be characterised as a contractor or co-contractor entity in relation to the service
      17. the acquisition of materials or goods other than for use in manufacturing or distribution type transactions
      18. sale or creation of intangible assets
      19. purchase of intangible assets
      20. granting a license
      21. receipt of a license
      22. granting a franchise
      23. receipt of a franchise
      24. cost contribution agreement or civil law partnership contract
      25. granting a credit
      26. taking a credit 
      27. granting a loan 
      28. taking a loan 
      29. provision of financial leasing 
      30. use of financial leasing 
      31. granting a surety or guarantee 
      32. use of a surety or guarantee 
      33. provision of factoring 
      34. use of factoring 
      35. the money placement part of a cash-pool
      36. the borrowing part of a cash-pool 
      37. provision of insurance 
      38. use of insurance 
      39. provision of reinsurance 
      40. use of reinsurance 
      41. hedge 
      42. asset management, portfolio management 
      43. use of asset management, portfolio management 
      44. administering trusts 
      45. use of trusts 
      46. financial intermediation services  
      47. use of financial intermediation services 
      48. provision of other financial services 
      49. use of other financial services 
      50. transfer of a business or shareholding, other ad hoc transaction related to reorganisation 
      51. ad hoc purchase of assets not related to reorganisation 
      52. non-monetary capital transaction within the meaning of Section 18(6) of the Corporate Tax Act 
      53. other transactions 
    • Finally, the taxpayers have to provide information on the name and VAT number of the affiliated companies involved in the transaction under review, the net transaction value actually accounted for between the parties in the given year and the adjustment of the corporate income tax base according to Section 18 of the Act on CIT (if any).
Master and local file
  • There is an explicit list of expected contents for the Master File and the Local File defined in the Decree: in principle, it follows the documentation structure defined by the OECD, but the Decree specifies some additional requirements that shall be met.
  • The deadline for the preparation of the Local File is the filing date of the corporate income tax return (generally 31 May). The deadline for the preparation of the Master File is adapted to the ultimate parent company, but no later than 12 months after the last day of the tax year.
  • TP documentation and supporting documents may be prepared in languages other than Hungarian, but upon request, the taxpayer is obliged to provide the tax authority with a Hungarian technical translation of the documents prepared in foreign languages other than English, German and French, which are necessary for the clarification of facts.
Some risk factors for challenge
  • Due to the new transfer pricing reporting obligation, we believe that it may be worthwhile, even before the annual accounts are closed, to examine whether the current pricing or profit is in line with the arm’s length range. In practice, this means that the necessary database research should not be carried out in the weeks before the corporate income tax return is filed, but much earlier than before, so that the pricing or profit can still be changed in the light of the results obtained. In fact, instead of paying a large amount of tax, the related parties involved can make the necessary adjustment by simply amending the contract.
  • The increasing number of TP-related tax audits demonstrates 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; however, it should be provided upon request and the tax authority has to prove if it is not adequate.
  • Each year the tax authority publishes the tax audit guidelines, including the industries that will be the focus of tax audits in that year.
  • Taxpayers that generate losses on a notorious basis (and optionally pay no tax after minimum profit) and/or have intercompany service charges with a relatively high value can expect a higher probability of tax audit.
  • Domestic legislation is quite limited in certain respect, as the applicable rules and guidelines (1) do not provide TP rules or special measures regarding hard to value intangibles (2) do not provide guidance on how to price intangibles (3) do not regulate cost contribution agreements.
  • If the tax authority finds any deficiency, tax penalty and late payment interest on arrears may be impose in accordance with general rules of Hungarian taxation.
  • Penalties for non-compliance: (1) According to the amendment to the legislation, the penalty for non-compliance may be up to HUF 5 million per (consolidated) documentation, and for repeated non-compliance up to HUF 10 million per (consolidated) documentation. To increase the deterrent effect of the default fine, the legislator provided for a higher rate based on 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) Failure to register a related party (in the case of a new business partner) with the tax authority, the penalty is up to HUF 500.000.
  • Penalties for underpayment of tax (1) A 50% tax penalty may be imposed on the additional tax payable (2) Interest on arrears may also be charged.
Economic analysis and how to demonstrate an arm’s length result
  • Comparability analysis is barely regulated, the OECD Guidelines must be followed. The comparability analysis has to be carried out in such 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, sources from other geographical region may also be accepted as well.
  • The arm’s length price range for low value-added intra-group services is 3-7%.
  • The regulation on the use of the interquartile range is renewed. According to the amendment, the
    interquartile range must be used if the applied transfer pricing method takes into account 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 median range, which covers half of the sample elements. The taxpayer has to perform a new database search at least every three tax years and the financial data of selected comparable transactions or companies must be updated at least annually, provided that there are no significant changes in business activity which would be considered as significant by independent parties in the determination of the prices to be applied.
  • If it is reasonable (e.g. due to the functional analysis, the sample composition or the extreme values), the taxpayer shall apply additional filters relying on the interquartile range.
  • The Act on CIT defines the cases when profit before taxation shall be modified by TP adjustment: it is required, when the price used between related parties, based on their agreement, is lower or higher than the consideration used by independent parties under comparable conditions (there are additional rules if the related party is considered as a CFC).
  • If the consideration applied by the taxpayer does not fall in the arm’s length range, the median of the arm’s length range shall be taken into account as the arm’s length price, except if the taxpayer demonstrates that a value within the arm’s length range other than the median is more suitable for the transaction under review, in which case this value shall be applied as arm’s length price instead of the median. If the consideration applied by the taxpayer is within the arm’s length range, there is no room for transfer pricing adjustment. 
Advance Pricing Agreements (APAs), dispute avoidance and resolution
  • Advanced Pricing Agreement (APA) is a written transfer pricing guidance from the Ministry of Finance on how to treat a particular intercompany transaction. The result of the APA process is valid for a minimum of 3 years and a maximum of 5 years (with a possible extension for further a 3 years). As long as the taxpayer complies with the APA, the taxpayer’s transfer pricing is deemed to be at arm’s length for the transaction under review.

  • The process could start (1) with a professional consultation with the tax authority, or (2) with the submission of a formal request. The tax authority can manage unilateral, bilateral, or multilateral agreements.

  • The unilateral APA procedure shall be completed within 120 days, but this period may be extended twice by a further 60 days. In case of a bilateral or multilateral procedure, the consultation with the competent authorities shall be completed within 2 years, but the deadline could be extended by 1 year if it is reasonable.

  • The APA is subject to a fee in 2023 as well. The fee for the procedure to determine the arm’s length price is HUF 5 million in a unilateral procedure, and HUF 8 million in a bilateral or multilateral procedure. Payment in instalments or deferred payment is not permitted.

  • The rules are included in Act CL of 2017 on the Rules of 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, (10) the price used in the transaction is an official price or determined ad hoc by legislation.
  • There are also exemptions based on the arm’s length value of the transaction: the value does not reach HUF 100 million (net) within the tax year. The contracts which may be consolidated are to be considered together. The Decree defines the conversion process for currencies other than HUF.
  • For intra-group transactions between members of a corporate taxpayer group after the establishment of such a group (the possibility of establishing a corporate taxpayer group for corporate income tax purposes is available to 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% (although temporarily reduced to 0% effective from 1 July 2019 to 31 December 2023).
Tax authority and taxpayer behaviour
  • Documentation does not have to be submitted to the tax authority; however, it should be provided upon request.
  • A tax audit may be initiated at any time and may relate to any tax year in accordance with the statutory limitation period. The tax auditors usually carry out on-site visits. The TP documentation is also part of the initial information package sent electronically to the tax authority. The audit may take several weeks.
  • The tax authority will issue a report 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. The expectations of the Hungarian tax authority are largely in line with the Guidance on the Transfer Pricing Implications of COVID-19 published by the OECD.

For further information on transfer pricing in Hungary please contact:

Gábor Szarka.png

Gábor Szarka
T +36 (30) 415 1570