From 2025, we are saying goodbye to the previous transfer pricing regulation and introducing a new one, which affected parties may choose to apply already for the previous year. However, from 2026 onwards, its application will be mandatory. While the new rules do include certain simplifications, they are much more characterized by stricter requirements.
Hungarian transfer pricing rules are becoming stricter from 2026 onward.
With the new regulation, lawmakers aim to further align the content of transfer pricing documentation and data reporting, as well as to support tax authority risk management, targeted selection for audits, and the efficiency of audits through standardized, digitally easily manageable data.
Some of the changes codify practices that had in fact already been expected and applied, but they now clearly reduce companies’ room for maneuver and provide an even more solid legal basis for imposing fines.
Let us first look at the relief measures: transfer pricing exemptions are being expanded, and the value thresholds for exemptions are being increased.
Unfortunately, the list of simplifications
is much shorter than that of restrictions. Thanks to the new rules, the situation may primarily
become easier for companies engaged in related-party transactions of lower
total value. On the one hand, companies whose net total value of related-party
transactions, calculated at arm’s length prices, does not exceed HUF 500
million are not required to prepare a Master File. On the other
hand, by increasing the exemption threshold for the Local File and transfer
pricing data reporting from the previous HUF 100 million to HUF 150
million, the administrative burden may be reduced for many businesses.
A minor administrative simplification for those concerned is that they will not have to prepare an industry analysis as part of the transfer pricing documentation for transactions below HUF 1 billion.
From the perspective of simplifications versus stricter rules, the changes related to low value-adding services and the preparation of simplified documentation may be viewed as mixed. This is because the regulation redefines the concept of low value-adding services.
An
activity is considered a low value-added service if
- it is not provided by affiliated companies
to independent parties,
- it does not require or create unique,
valuable intangible assets,
- it does not involve significant
risk-taking,
- it is not a manufacturing, assembly,
distribution, financial, or insurance activity, and
- is not the extraction or processing of
natural resources,
- in the provision of such a service, the
actual markup must be at least 5%, and,
- when such a service is received, the
actual profit margin may be no more than 5%.
Thanks to the new rules, the range of low value-added services will expand significantly. Low value-added services may include, among other things, the leasing of real estate or equipment, and the resale of purchased equipment and services in an unchanged form, provided that the listed conditions are met.
For low value-added service transactions, it is sufficient to keep simplified records, which can be a significant simplification.
At the same time, the fact that only simplified records need to be kept of free transfers and receipts of funds and cost allocations is actually a tightening of the rules, as until now it has not been necessary to keep any transfer pricing records at all. From now on, only cost recharges not exceeding HUF 500 million may be exempt from the obligation to prepare a local file. This is only slightly mitigated by the fact that, in the case of free transfers or receipts of funds and cost recharges, the actually achieved profitability indicator is not required even for the simplified documentation.
The simplified documentation does not require the presentation of the relevant
market, business strategy, methodology, tested party, assumptions underlying
the choice of methodology, profitability indicators, benchmark, or
comparability adjustments.
With this, the list of reliefs and
simplifications comes to an end; any further
changes will make companies’ transfer pricing tasks even more complex and even
harder to comply with. Thus, it is no exaggeration to say that companies with
significant related-party activities will not be able to perform these tasks
without the involvement of specialists.
The Transfer Pricing Business Unit of LeitnerLeitner is available to assist with all matters related to transfer pricing, including the preparation of documentation and benchmarks, compliance with tax authority reporting obligations, tax audits, as well as Advance Pricing Agreement (APA) and Mutual Agreement Procedure (MAP) proceedings. If you have any problems interpreting or applying the new rules, don't hesitate to seek our assistance!
Preparation of segmented income statements and the presentation of actual profitability in transfer pricing.
One of the additional requirements under
the new rules is the preparation of segmented income statements, which will
henceforth be a general and fundamental requirement even for low value-added
services. Although this rule is not entirely new, its emphasis in the text of
the new regulation, together with our existing experience from tax authority
audits, shows that while meeting this requirement is critically challenging, it
is unavoidable.
For the purposes of segmentation, related and unrelated items must be allocated on both the revenue and expense sides down to the operating profit level, and no unallocated items may remain. If profitability is not correctly determined and, during an audit, the figures are adjusted to the often-higher median value, this may also increase the tax base, potentially leading to severe penalties.
It is
also possible that the necessary data is held by the affiliated company,
but even in this case, the records must be substantiated, meaning that
sufficient time must be allocated to obtaining the segmented data.
Under the
amended transfer pricing rules, the actually achieved profitability
indicator must also be examined. It is not sufficient to refer solely to
the percentage set out in the group’s transfer pricing policy; the level of
profitability consistent with the value of the transaction must be clearly
identifiable and demonstrable in the accounting records.
The new transfer pricing requirements related to comparative analysis (benchmarking).
Similarly to the points described above,
the new requirements relating to comparative analyses will place a
significant burden on the affected parties. In the future, the authority will
not automatically accept the group’s centrally prepared benchmark studies.
It is expected that
- the data included in the comparative study is available no later than at the time the tax obligation is fulfilled.
- the following criteria be examined during the database screening: unique identifiability, activity status, independence, availability of data for each of the preceding three years, appropriate geographic criteria, primary activity codes, exclusion of consistently loss-making companies, and data from the websites of independent third-party companies.
- If the tested party operates in Hungary, Hungary shall be the comparable geographical area. This may only be extended in the case of a small number of elements, taking into account a specific territorial sequence.
A more detailed functional analysis is the heart of transfer pricing documentation.
The requirements related to functional
analyses have been expanded. It is necessary to present the economically
relevant characteristics of the related-party transaction:
- contractual
terms,
- functional
profile,
- characteristics
of the product, goods, or service,
- economic
circumstances,
- business strategy.
In the case of intangible assets,
the DEMPE functions must also be presented: the intangible asset
- creation,
- development,
- maintenance,
- protection,
- exploitation
Benefit test in the transfer pricing of service transactions.
In the case of service transactions—especially
central and management services—the recipient of the service must demonstrate
that the service is genuinely necessary for its business activities and that it
would obtain the service from an independent party or perform it itself.
Without a demonstrable benefit, the cost of the service cannot be
recognized in the tax base.
Aggregation in the preparation of transfer pricing documentation.
In the future, manufacturing, distribution, service, financial, and intangible-asset-related transactions cannot be aggregated; that is, they cannot be covered by preparing a single set of documentation.
Additional transfer pricing documentation requirements.
According to the new transfer pricing
regulation, the following additional data must be included in the transfer pricing documentation:
- the tax residence of the
related party,
- in the case of indirect majority control, the intermediate persons, as well as the manner and extent of the majority control,
- it is necessary to provide the transaction designation already known from the data reporting, in accordance with the now 54-item list, the most characteristic TEÁOR code, and a precise characterization.
A
related-party transaction may arise between related enterprises even in the
absence of invoicing, and if a transaction is not classified correctly, the tax
authority may reclassify it; this may require the preparation of transfer
pricing documentation and/or an adjustment of the tax base.
How can your business prepare for the new transfer pricing requirements?
It is
necessary to review and update
- segmentation
and financial processes,
- the content of transfer pricing documentation, including the functional analysis and the analysis of services,
- the
benchmark strategy and database screenings,
- transactions that were previously exempt but will in the future be subject to transfer pricing documentation and/or data reporting obligations.
Last but not least, more time must be devoted to preparation and to obtaining and producing the necessary data.
