Who is affected?

The transfer pricing documentation and reporting obligation applies if the taxpayer, as the subject of corporate tax, is classified as at least a medium-sized enterprise under the SME Act (taking into account group-level data) or another organization specified in the corporate tax law, and has conducted transactions exceeding HUF 100 million excluding VAT calculated at arm's length prices with its affiliated companies during the business year under review. Hungarian regulations require sufficient care when determining the value of the transaction. The transaction values that can be treated as consolidated must be taken into account together.

As we mentioned in our previous newsletter, "Transfer Pricing Data Reporting and beyond - Who is affected? What data does the tax authority receive?", certain transactions are exempt from the documentation obligation for reasons other than the transaction value, the reporting obligation varies for these transactions, for example, it is limited in the case of transactions conducted with private individuals who are not sole traders, cost transfers, and free transfers and receipts of funds.

If there is no documentation obligation, is there nothing to do?

According to the Act on Corporate Income Tax and Dividend Tax, the arm's length principle must be applied to all transactions conducted with affiliated companies. The tax authority intends to examine this as part of its comprehensive audits. If it is identified that transactions conducted with affiliated parties were not settled at arm's length prices, which means that they were not settled at prices that independent parties apply or would apply to each other under comparable circumstances, the corporate tax base must be adjusted as follows:

1. The correction obligation applies in any case if, due to the amount settled between the related parties, the pre-tax profit of the company concerned is lower than it would have been if the arm's length price had been applied.
2. If the pre-tax profit is higher due to the price applied, the adjustment can only be made if the affiliated party contracting with the company is a domestic taxpayer or a foreign entity that is subject to corporate tax in its country of residence and declares the amount of the difference.

The adjustment does not only affect corporate tax, but may also modify the basis for business tax and innovation contribution, and may also have an impact on value added tax.

Even if there is no documentation obligation, taxpayers are advised to collect and document data supporting the application of the arm's length principle. This is particularly important because, under current tax authority audit practice, the authority requests information on compliance with the arm's length principle even for transactions not exceeding HUF 100 million.

If there is a documentation obligation, what is required to be included in the documentation?

In accordance with Decree 32/2017 (X.18.) of the Ministry for National Economy, the documents of taxpayers subject to transfer pricing documentation requirements must include a Master File, which provides a general overview of the group in a transfer pricing perspective, and a Local File.  The Local File now consists of a taxpayer-level common part and a transaction-level part or parts.

The taxpayer-level common part includes, for example, a description of the taxpayer's management, organizational chart, strategy, description of its main competitors, arm's length pricing or other tax assessment decisions in connection with transactions carried out by the taxpayer, including, for example, cases where a tax audit is carried out at an affiliated company and the audit makes a finding in connection with a transaction carried out with the taxpayer.

The transaction-level part includes, among other things, a description of the transaction subject to the documentation obligation, a list of the affiliated parties involved in the transaction, a functional analysis, the identification of the most appropriate arm's length pricing method, the identification of the affiliated enterprise (or taxpayer) selected as the tested party, the presentation of comparable data, and the determination of the arm's length price, price range, or profitability.

It is important to note that in Hungary, the legislator has not set a specific limit for the preparation of the Master File; if a Local File is to be prepared, the Master File for the group of companies must also be available.

Documentation has been prepared centrally, is there nothing to do?

Although Hungarian regulations are based on OECD guidelines, it is recommended that documentation prepared centrally by the group be reviewed in accordance with domestic regulations. In many cases, particularly in the case of intra-group services, the international approach may contain simplifications that do not meet Hungarian requirements.

How does the tax authority determine that data reporting has been failed?

The tax authority has access to data on taxpayers and their transactions from a number of sources, including international and domestic data reporting, such as the information published in the Notes to the Accounts on transactions with affiliated parties. The tax authority's continuously developed toolkit enables fast and efficient data analysis, supported by the use of artificial intelligence and artificial learning processes. These tools are used effectively in both selection and auditing, identifying risky taxpayers and transactions, but also focusing on specific topics for audits.

In 2025, particular attention is paid to the following industries and audit aspects:

- Automotive and pharmaceutical industries,

- Construction industry, webshops, employment agencies,

- Internet content providers, event management,

- Loss-making businesses, especially in the case of permanent losses,

- Whether affiliated transactions can be linked to the accounting information system,

- Availability of segmented income statements,

- Explanation and detailed description of the reasons for consolidation,

- Detailed examination of comparability adjustments,

- Transfer pricing reporting submitted as part of the annual corporate tax return and its comparison with the data in the documentation.

In 2025, the National Tax and Customs Administration also established regional transfer pricing expert departments with exclusive authority to audit transfer prices, with the aim of ensuring stricter and more coordinated audits of compliance with the rules. These departments specifically examine transfer pricing documentation and data reporting, particularly in the case of larger corporate groups.

The depth of the investigations has also increased: the time frame for compliance investigations has been extended from 30 days to 60 days, allowing the tax authorities to carry out more thorough and detailed audits.

Penalties

From 2023, the Master File, the taxpayer-level common part and the transaction-level part or parts of the Local File are considered separate documents, so each part can be fined separately. In the event of a breach of the documentation obligation or a breach of the document keeping obligation related to documentation, the taxpayer may be subject to a default penalty of up to HUF 5 million per documentation (per consolidated documentation) and, in the event of a repeated breach, up to HUF 10 million per documentation (per consolidated documentation).   

Without proper documentation, data reporting cannot be performed adequately, as the data to be provided in the corporate tax return in connection with the determination of the arm's length price is based on the documentation. Failure to comply with certain tax obligations (e.g. data reporting, tax returns, change notifications, etc.) may result in a default penalty.

It is also important to mention the obligation to report affiliated companies to the tax authority, which must be done within 15 days of the first contract being concluded (including verbal agreements and invoicing), as well as reporting the termination of affiliation and cash payments for services provided between affiliated companies exceeding one million forints.

Don't postpone your transfer pricing questions! Contact us with confidence to receive expert support to comply with legal requirements correctly and efficiently!