Hungary: Changes to transfer pricing rules, including reporting and documentation

The recently published tax laws contain the following important changes regarding transfer pricing, effective for the 2022 fiscal year.

A new transfer pricing reporting obligation was introduced this summer, and the Minister of Finance’s transfer pricing decree issued on 28 December 2022 provides details on the new transfer pricing reporting obligation, including the information that must be provided in the corporate tax return.

• The reporting must be prepared on a transaction-by-transaction or a consolidated transaction basis.
• The information must include, among other things, the characterization of the transaction, the most relevant Nomenclature générale des activités économiques dans les Communautés Européennes (NACE—General Industrial Classification of Economic Activities within the European Communities) equivalent code, the transactional value, certain administrative data pertaining to the involved parties, the transfer pricing methodology and indicator selected, and the arm's length price or price range.
• The transactions covered by the reporting obligation may be broader than those transactions with documentation obligation.
• The transfer pricing reporting obligation in the corporate income tax return applies at the earliest to returns filed after 31 December 2022.

The reporting obligation is expected to assist the tax authorities in more efficient and targeted transfer pricing and comprehensive tax audits. 

The rules governing year-end adjustments have changed considerably.

• As a general rule, the adjustment must be made to the middle (median) value of the range when corporate tax base adjustments are made related to transfer pricing.
• Deviations from the median are possible in very limited cases only if the deviation from the median can be justified and supported from a transfer pricing perspective.
• Furthermore, no adjustment is possible if the price applied is already within the arm's length range before the adjustment.
• The above rules will apply for the first time when determining the tax liability for the tax year starting in 2022.

These changes increase the importance of using appropriate comparable analyses which must adhere to local Hungarian legal requirements. Furthermore, the risks associated with using central- and group-level database searches without review is increasing significantly.

Significant changes were made to the transfer pricing documentation rules.

• The HUF 50 million (approximately €125,000) transfer pricing documentation threshold is increased to HUF 100 million (approximately €250,000). The increased threshold is only applicable to financial years which started on or after 1 January 2022.
• The penalty for not preparing transfer pricing documentation or for incomplete transfer pricing documentation will be increased to HUF 5 million (approximately €12,500) per transaction, and an additional HUF 5 million (approximately €12,500) may be imposed for a missing or inadequate Master file.
• In the case of intra-group services, more detailed information should be presented regarding the pricing of such transactions than before (for example, on cost allocation methodology and keys).

• Mandatory use of the inter-quartile range: The use of the inter-quartile range in determining an arm's length price has become stricter (i.e., its use has become more broadly mandatory). The entire existing minimum-maximum range may be used in fewer cases than previously allowed by previous legislation, and therefore the transfer pricing and pricing methodologies previously used may need to be revised.
• Increased procedural fees for advance pricing agreements (APAs): The fee for APAs was increased to HUF 5 million (approximately €12,500) for a unilateral procedure and HUF 8 million (approximately €20,000) for bilateral or multilateral procedures.

Read a January 2023 report [PDF 141 KB] prepared by the KPMG member firm in Hungary

For more information, contact a KPMG tax professional in Hungary:

Mihály Gódor | mihaly.godor@kpmg.hu

Tamás Kovács | tamas.kovacs@kpmg.hu

Gábor Szűcs | gabor.szucs@kpmg.hu