From 1 January 2007, advance approval can be sought from the Hungarian Ministry of Finance of the methodology to be used for establishing a fair market price in a future related party transaction and, if possible, the fair market price or price range to be used in the advance pricing agreement.
This means that the methodology for transfer pricing must still comply with the Hungarian Corporate Tax Act, but now taxpayers can obtain HMF approval for the transfer price. HMF will issue a resolution once it has given approval and, as long as the conditions are not changed, the Hungarian tax authority may not object to the price applied for on the ground that it is not an acceptable arm's length price.
The HMF resolution also carries an important guarantee that, for 60 days from its date of issue, the Hungarian tax authority may not carry out an audit on the taxpayer to whom the HMF resolution is addressed. During the 60-day period, the taxpayer can thus correct retrospectively the price it used in its related party transactions before receiving the HMF resolution and, if necessary, correct its VAT returns submitted earlier using a different price from the one approved by the HMF. It also means that the HMF may not be asked to approve the arm's length price using the procedure for obtaining a binding ruling.
Under the new system, it is also possible before submitting a request for an advance pricing agreement to enter into advance consultation with the HMF on the appropriate way to calculate market price, possible ways of cooperation, etc. Agreements made in previous consultations are not binding on either party.
HMF approvals are valid for a limited period between three and five years (with the possibility to extend it only once for up to a further three years), as long as there is no change in the underlying facts. Applications are subject to an administration fee of between HUF 5 million (c €20,000) and HUF 15 million (c. €60,000), depending on the type of advance pricing agreement procedure (i.e. whether it is a unilateral or multilateral procedure).
Requests to initiate an advance pricing agreement procedure must be countersigned either by a Hungarian certified tax advisor or a lawyer. In general, the procedure will take up to 120 days to be dealt with.
Law: Decree No. 38/2006 (XII.25) of the Ministry of Finance
