Transfer Pricing
Country Summary
Hungary

Overview:

Regulatory Framework and Compliance Requirements

Hungary’s transfer pricing regulations are primarily governed by Section 18 of the Act on Corporate Income Taxation (CIT Act), emphasizing the arm’s length principle. Hungary’s Ministry for National Economy issued Decree 32/2017, requiring related companies to document arm’s length prices and methods. The legislation references the OECD Transfer Pricing Guidelines for guidance.

Defining Related Parties

Hungary defines related parties as enterprises linked through majority shareholding, common majority shareholders, significant management control, foreign entrepreneurs with domestic branches, domestic entrepreneurs with foreign branches, or common management.

Transfer Pricing Documentation Requirements

Transfer pricing documentation is mandatory for controlled transactions. However, specific exemptions apply, including small-sized entrepreneurs, transactions with private persons, and when prices are determined by legislation. Documentation is also not required for transactions under 50 million HUF (approximately 165,000 EUR) per fiscal year.

Country-by-Country Reporting (CbCR)

Country-by-Country Reporting requirements have been implemented in line with the BEPS Action Plan and EU Council Directive 2016/881. Reporting obligations for Hungarian parent companies start from January 1, 2016, and for other group entities, it begins from January 1, 2017.

Advance Pricing Agreement (APA)

Hungary has offered APAs since January 1, 2007. Applications can be made for future transactions on a unilateral, bilateral, or multilateral basis for a period of 3 to 5 years. An application fee and preliminary consultation fee apply. Decisions are typically made within 120 days, with possible extensions.

Audit Practices

The Hungarian Tax Authority has focused on transfer pricing since 2004. Audits may be general or TP-focused, with a higher probability for companies generating continuous losses, paying substantial management or royalty fees, or involved in loan interest transactions.

Transfer Pricing Documentation Requirements

The transfer pricing documentation in Hungary aligns with BEPS recommendations, comprising master files and local files. Subsidiaries are responsible for preparing master files. The master file-local file approach became mandatory in 2018. The local file includes administrative information, data on local entities and operations, specifics about intra-group transactions, and more.

Choice of Transfer Pricing Method

Hungary accepts OECD-recommended methods like Comparable Uncontrolled Price Method, Resale Price Method, Cost Plus Method, Transactional Net Margin Method, and Profit Split Method. Taxpayers can use an alternative approach when OECD methods are inapplicable.

Economic Analysis – Benchmark Study

Taxpayers are required to provide benchmark studies to determine arm’s length ranges for transactions, preferably using Hungarian comparables.

Inter-company (IC) Legal Agreement

While inter-company legal agreements formalize business relationships, the “conduct of parties” concept is emphasized, following OECD 2017 Guidelines.

Financial Statements

Companies must disclose intra-company transactions in their financial statements.

Production Process for TP Relevant Returns, Documents, Forms, and Financials

Mandatory languages for document submission include Hungarian, English, German, and French. A Hungarian summary is recommended for effective communication with Tax Officers.

Record Keeping

Records must be retained in Hungary for five years.

Penalties and Interest Charges

Non-compliance with transfer pricing documentation requirements can lead to penalties. Default fines apply for missing documentation, with potential increases for repeated violations. Fines also apply for missing or incorrect CbC reports. Tax underpayment can result in tax penalties and late payment penalties.