Segmentation is the biggest challenge of the new transfer pricing rules

One of the most challenging aspects of the new transfer pricing decree is the tightening of expectations regarding segmentation. This is even more pronounced when fulfilling transfer pricing obligations for the 2025 tax year, which serves as a transitional period: certain elements may already follow the new rules, while others must still comply with the previous regulations.

 

Why Segmentation Matters in Transfer Pricing

Segmentation ensures that related-party transactions can be analyzed independently and in a functionally consistent manner. It forms the basis for benchmark analyses, the assessment of profitability, and transfer pricing reporting (ATP). The new decree clearly requires transaction-level—or at least activity-level—performance measurement instead of a company-wide, aggregated approach.

At the same time, this approach is not entirely new—it simply has not been articulated this explicitly in the regulations before. In earlier tax audits, the Hungarian tax authority (NAV) already examined whether results were genuinely attributable to the specific related-party transactions and ensured that activities with different functional profiles were not “mixed.” In essence, the change lies in the fact that the decree now formally requires proper segmentation and substantiation, which is essential for ensuring consistency between documentation and ATP data.

What Constitutes Proper Segmentation?

• It reflects results aligned with the functions of the tested party,
• revenues and costs related to individual related-party transactions are clearly separated from those of other transactions,
• and the resulting figures are suitable for comparability analysis.

Segments must therefore not be overly broad or defined at the company level.

Why Is Segmentation Challenging for Most Companies?

Primarily because most companies’ accounting and controlling systems are not designed around related-party transaction logic, but rather around legal entities, cost centers, or business lines. As a result, extracting the required data from existing systems is difficult.

This is particularly evident on the cost side. Even direct costs are often not fully separated, while indirect costs are typically allocated based on ex post estimates, making them difficult to reproduce. In many cases, segmentation is driven not by economic reality but by data availability. However, the new decree explicitly prioritizes economic substance.

Act in time: LeitnerLeitner’s specialized transfer pricing team can support you in developing segmentation logic, substantiating allocations, and preparing financials suitable for benchmarking. Contact us for a short, focused discussion.

Why Is Incorrect Segmentation a Major Risk for 2025?

For the 2025 tax year, taxpayers may choose to apply the new rules for local documentation, while transfer pricing reporting must still follow the old rules. This can lead to dual calculation logic.

For example, local documentation may already be prepared using segmented financials under the new rules, while ATP forms are completed using company-level data or different segmentation structures. Since NAV’s risk assessment is based primarily on ATP data, discrepancies in methodology may lead to increased scrutiny and additional explanation requirements.

How Are Segmentation and Benchmarking Connected?

To assess whether segmentation is appropriate, a simple question can be asked: would there be an independent company on the market carrying out exactly this activity in this form?

If the answer is yes, the segmentation is likely appropriate; if not, it likely requires adjustment.

An overly broad segment makes it difficult to identify suitable comparable companies, while an excessively fragmented segmentation may distort profitability.

 

Segmentation has therefore become a key issue under the new transfer pricing decree. It is advisable to focus on this area now and only consider early adoption of the new rules once a clear and stable segmentation approach is in place.

Is it worth applying the new transfer pricing rules for 2025?