1. A. Transfer pricing documentation requirements
    1.  Are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
    2.  What is the content of the documentation that must be prepared?
    3. Which transactions must be documented – all transactions with associated enterprises, or only those which exceed a particular threshold?
    4. What is the definition of “associated enterprises” for the purposes of this requirement – in particular, are transactions between a PE and its head office in the scope of the documentation requirement?
    5. For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on TP documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
    6. For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to Chapter V of the OECD TP Guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?
    7. Do taxpayers which are not established in Hungary need to undertake to provide any specific information upon request? Can your tax authorities require a taxpayer in your jurisdiction to provide information which is located in another state?
    8. If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
    9. If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum Guidelines on low value-adding services  1  or revisions to Chapter VII of the OECD TP Guidelines about low value-adding intragroup services) in your jurisdiction, or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances are taxpayers exempted from benchmark studies?
    10. What language(s) is to be used by taxpayers in submitting TP documentation?
    11. What is the deadline or timescale for providing TP documentation to the tax authorities - is it to be provided, for example, upon filing of the tax returns, at the beginning of a tax audit or on the specific request of the tax authorities?
    12. In the event that the documentation is not provided within the applicable timescale or is incomplete, do documentation-related penalties apply? If so, please detail the penalties and the circumstances in which they do and do not apply.
    13.  Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?
    14. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation- related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?
    15.  Any other relevant aspect not addressed above?
  2. B. Country-by-Country reporting ("CbCR")
    1. Has the obligation to file a CbCR been implemented? If not, is the introduction of the CbCR being considered, and if so, when?
    2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?
    3. Which taxpayers are required to file a CbCR under the applicable laws?
    4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?
    5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?
    6. Are there tax treaties in force allowing the communication of CbCR with other jurisdictions?
    7.  Any other relevant aspect not addressed above?
  3. C. As the case may be, other documentation / filing requirement in relation to transfer pricing?
    1.  Are there any other documentation/filing requirements in relation to TP?
    2.  If so, what is the content of such documentation / filing requirement? What language(s) are to be used by taxpayers?
    3.  What is the deadline for meeting this documentation / filing requirement?
    4.  Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
    5. What is the penalty for failing to meet this requirement on time?
    6. Any other relevant aspect not addressed above?

jurisdiction

Hungary
Add jurisdiction

A. Transfer pricing documentation requirements

1. Are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?

In Hungary, all Hungarian resident entities subject to corporate income tax, including permanent establishments (“PEs”) of foreign entities, are generally required to maintain TP documentation  with regard to transactions made with related parties. This applies even where the related party is wholly domestic, and is subject to only a few exceptions.

The principal exception concerns companies or PEs which qualify as a “small enterprise” on the last calendar day of the relevant financial year. These are exempted from the obligation to maintain TP documentation. A taxpayer will qualify as a small enterprise (and thus will not have to maintain TP documentation) if, on a consolidated basis:

  • it has less than 50 employees
  • its annual net sales revenue or balance sheet total does not exceed EUR 10 million
  • the Hungarian State and/or any Hungarian Local Municipality, individually or in total, does not have a direct or indirect holding exceeding 25% in its voting stock or capital.

Small- and medium-sized enterprises are exempted from having to maintain TP documentation in relation to long-term contracts which are made with related parties for the purposes of making joint purchases and sales in order to overcome a competitive disadvantage. This, however, is subject to the proviso that the combined voting rights of small- and medium-sized enterprise shareholders in the related party exceed 50%.

Under the relevant Hungarian regulations, the taxpayer will qualify as a medium-sized enterprise if, on a consolidated basis:

  • it has less than 250 employees
  • its annual net sales revenue does not exceed EUR 50 million or a balance sheet total not exceeding EUR 43 million
  • the Hungarian State and/or any Hungarian Local Municipality, individually or in total, does not have a direct or indirect holding exceeding 25% in its voting stock or capital.

The obligation of preparing TP documentation does not apply to the following transactions:

  • contracts concluded with private individuals (other than private entrepreneurs)
  • controlled transactions where the minister in charge of taxation or the tax authority established the applicable arm’s length price in a resolution, during the effective period of such resolution, provided that the facts included in the resolution are unchanged
  • transactions where the consideration payable for supplies of goods or services are transferred to the related company/companies in the same amount or value by the taxpayer, provided that the supplier of the goods or services is not a related party to the taxpayer, the foreign person or the party covering the costs. However, if the consideration is charged for services or goods supplied to more of the taxpayer’s related parties, the taxpayer may only be exempted from the TPD obligation if it is able to substantiate that the allocation method used complies with the arm’s length price principle
  • gratuitous cash transfers
  • transactions with related parties where the net value of the annual performance, based on the agreement with related party, does not exceed HUF 100 million (to be converted at the year-end exchange rate used for bookkeeping) in the tax year. The value of similar transactions that can be aggregated shall be taken into account cumulatively
  • transactions effected on the stock exchange or at an officially determined price. However, cases of insider trading, fraudulent attempts to influence exchange rates and applying prices in breach of legal regulations are not exempt
  • non-repayable financial support, grant or any asset (including handover of investment projects) provided without consideration under statutory obligation to the State or any local municipality.

2. What is the content of the documentation that must be prepared?

2.1 Which transactions must be documented – all transactions with associated enterprises, or only those which exceed a particular threshold?

All transactions with associated enterprises must be documented where the net value of the annual performance, based on the agreement with the associated enterprise, exceeds HUF 100 million (to be converted at the year-end exchange rate used for bookkeeping) in the given tax year.

If a taxpayer conducted only low value-adding intragroup services, it may prepare TP documentation that encompasses a less detailed analysis. This type of documentation may only be applied if the net fair market value of the transaction does not exceed HUF 150 million (to be converted at the year-end exchange rate used for bookkeeping) in the given tax year, and also does not exceed 5% of the service provider’s net sales revenues or 10% of the recipient’s operational costs and expenditures (whichever is applicable to the entity preparing the TP documentation) in the tax year in question. In this case, the cost-plus method is accepted without a separate analysis, and mark-ups between 3% and 7% are considered to be at arm’s length by the law.

In principle, TP documentation has to prepared separately for each related party agreement. However, consolidated TP documentation may be prepared with respect to several agreements if the requirement of comparability is respected, and the subject and terms of the agreements are the same or similar, or if the transactions are closely connected to each other. The fact of consolidation should be justified in detail in the TP documentation.

2.2 What is the definition of “associated enterprises” for the purposes of this requirement – in particular, are transactions between a PE and its head office in the scope of the documentation requirement?

The relevant Hungarian definition of related parties basically states that two entities will generally be regarded as related parties when one of them has direct or indirect majority control over the other. This also applies when a third person has such control on two other entities (which makes those two entities “related”). The definition also applies to a head office and its PE. The term “majority control” is defined by the Hungarian Civil Code, according to which an individual or a legal entity has majority control in another entity if:

  • it holds more than 50% of the votes in the other entity, either directly or indirectly
  • it has dominant influence, i.e. it is a member/shareholder who is entitled to appoint or dismiss the majority of executive officers and/or supervisory board members of the other entity, or
  • other members or shareholders are committed under an agreement to vote in concert with the person who has majority control, provided that together they hold more than 50% of the votes in the other entity.

In addition to the above, two entities are also related if a dominating influence is exercised on the business and financial policies of the two, due to the fact that they share the same management.

2.3 For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on TP documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?

As of 17 November 2017 a new Decree of the Ministry of National Economy on Recording Obligations in Connection with Establishing Fair Market Prices (“the Decree”) has come into force.

The Decree requires taxpayers to prepare the group level Master File and the country-specific Local File (as set out in the EU TPD), however the requirements in terms of their content are based on the OECD approach. The Local File shall contain transaction-based data and information beyond the country- and taxpayer-specific information. It is not possible to choose the EU TPD rules instead of the requirements set by the Decree.

2.4 For all countries (and, in particular, OECD countries), is the content of the documentation similar to that described in the revisions to Chapter V of the OECD TP Guidelines (final report on Action 13 of the BEPS project)? If not, are taxpayers entitled to choose between the local requirements and the OECD approach?

Yes, the content prescribed by the Decree is practically the same as the content of Annexes I and II to Chapter V of the publication entitled OECD/G20 Base Erosion and Profit Shifting Project, Transfer Pricing Documentation and Country-by-Country Reporting, Action 13: 2015 Final Report, with some minor additional requirements.

2.5 Do taxpayers which are not established in Hungary need to undertake to provide any specific information upon request? Can your tax authorities require a taxpayer in your jurisdiction to provide information which is located in another state?

Generally, there is no obligation for a foreign taxpayer to provide information directly to the Hungarian tax authority.

At the same time, if a CbCR has to be prepared in Hungary by a Hungarian group member other than the ultimate parent company (see section B/Q3), this group member will request the necessary data from the ultimate parent company. If this request is unsuccessful, the Hungarian group member has to inform the Hungarian Tax Authority (“HTA”) of this fact. In this case, the HTA will inform the competent tax authority of the ultimate parent company of the incomplete data and will also determine whether penalties should be imposed (see section B/Q5).

Other than the above, the HTA can ask the foreign tax authority of another EU country or of another treaty country to collect information available in the other state.

2.6 If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?

In general, regional benchmark studies are accepted by the HTA, but only if domestic or CEE comparable data do not exist.

2.7 If comparable studies are to be provided in general, are safe harbours/specific circumstances exempting taxpayers from preparing benchmark studies (such as the EU Joint Transfer Pricing Forum Guidelines on low value-adding services  1  or revisions to Chapter VII of the OECD TP Guidelines about low value-adding intragroup services) in your jurisdiction, or are there situations in which tax authorities do not request benchmark studies? If so, in which circumstances are taxpayers exempted from benchmark studies?

The Decree provides simplifications regarding low value-adding intragroup services under the circumstances described in response to Q2a above (i.e. the taxpayer has not conducted and other type of services, the net fair market value of the transaction does not exceed HUF 150 million, and also does not exceed either 5% of the net income of the service provider or 10% of the operational costs and expenditures of the recipient). If these conditions are met, no separate analysis has to be carried out for low value-adding intragroup services. Instead, the cost-plus method is accepted and a mark-up in the range of 3% to 7% is automatically recognised as arm’s length.

The Decree provides an exhaustive list of low value-adding intragroup services, such as:

  • IT services
  • real estate transactions
  • professional, scientific, research and technical activities
  • educational services
  • administrative services
  • transportation, cargo handling, warehousing and storage services
  • other services (e.g. accommodation, guarding services etc).

2.8 What language(s) is to be used by taxpayers in submitting TP documentation?

Based on the Decree, the TP documentation and related supporting documents may be prepared in a language other than Hungarian.

3. What is the deadline or timescale for providing TP documentation to the tax authorities - is it to be provided, for example, upon filing of the tax returns, at the beginning of a tax audit or on the specific request of the tax authorities?

The deadline for preparing TP documentation is the statutory deadline for filing the taxpayer’s Hungarian corporate income tax return in respect of the foregoing tax year. Assuming that the business year of the taxpayer corresponds to the calendar year, the TP documentation is required to be in place by 31 May of the calendar year following that in which the intercompany transaction was performed.

It is not necessary to submit the documentation to the HTA, but since the 2022 tax year, in case of certain entities, certain data thereof shall be reported to the HTA as part of the corporate income tax return until 31 May.  The TP documentation should be kept on file and ready to be shown to the HTA if requested during an audit. The statute of limitations in Hungary (for tax purposes) is generally 6 years (7 in extreme cases).

If the taxpayer was liable to prepare and keep the TP documentation but failed to do so, or the TP documentation was incomplete, and the HTA establishes this during a tax audit, it may impose a fine on the taxpayer of up to HUF 5 million (approximately EUR 12,920) for each missing or incomplete TP documentation set, and up to HUF 10 million (approximately EUR 25,840) in the event of repeated non-compliance. Furthermore, in the event of a repeated offence concerning the same transaction, the penalty may be four times that previously levied. Consequently, the HTA may levy the maximum default penalty even where the TP documentation was available but had not been prepared in accordance with the relevant provisions of Hungarian legislation.

In practice, the penalty is often levied in cases where the HTA can prove (e.g. on the basis of the data used for the benchmarking study) that the TP documentation was not available at the statutory deadline despite being available at the time of the audit.

5. Does the absence or incompleteness of documentation reverse the burden of proof as regards the arm’s length character of the transactions?

If the taxpayer has prepared appropriate TP documentation in relation to its related party transactions, the HTA bears the burden of proof, i.e. the HTA has to prove that the arm’s length price presented in the TP documentation is not adequate. However, if the HTA has established during a tax audit that the taxpayer has no documentation, or that its documentation is inadequate, it may determine the appropriate pricing level itself based on comparable data and estimation. Few restrictions apply in this regard. Formally, the HTA would still need to justify its findings, but as it would not be constrained by any existing TP documentation, the taxpayer would have to prove that the HTA’s analysis was wrong. Thus, the burden of proof would effectively be shifted to the taxpayer.

Hungarian local provisions for the MAP do not prevent Hungarian resident taxpayers from initiating a MAP if a penalty is levied or a reassessment is made by the HTA. Taxpayers have 3 years from the receipt of the tax authority’s first instance resolution to initiate the procedure. The Arbitration Convention is also relevant, but this only applies to EU countries. According to Hungary’s declaration in relation to article 8 of the Convention, Hungary reserves the right to deny the MAP only in cases of criminal penalties, or penalties which relate to unpaid taxes exceeding HUF 50 million (approximately EUR 129,200). This means that the procedure under the EU Arbitration Convention may not be denied solely on the basis of the HUF 5 million procedural penalty for not having drawn up TP documentation. However, in the case of a reassessment, the procedure may theoretically be denied, if the re-assessment results in unpaid taxes exceeding HUF 50 million. This would however correspond to a tax base reassessment of approximately EUR 1.43 million.

7. Any other relevant aspect not addressed above?

N/A 

B. Country-by-Country reporting ("CbCR")

1. Has the obligation to file a CbCR been implemented? If not, is the introduction of the CbCR being considered, and if so, when?

Yes, the CbCR reporting obligation has been implemented into Hungarian law as of 31 May 2017.

2. If the obligation to file a CbCR is in force, what is the tax year from which this obligation applies and what is the deadline for filing the CbCR?

The obligation of the Hungarian-resident ultimate/appointed parent company applies, for the first time, to the tax year starting on 1 January 2016 or afterwards. The deadline is 12 months after the end of the tax year.

3. Which taxpayers are required to file a CbCR under the applicable laws?

Primarily, the ultimate parent company would be obliged to file a CbCR, if such entity is a Hungarian-resident entity. Any other Hungarian-resident group member is obliged to file a CbCR only if either of the following applies and no other group member files a CbCR for all EU-based group members:

  • the ultimate parent does not have to file a CbCR in its country of residence
  • Hungary does not have an agreement with the country of residence of the ultimate parent which would cover the forwarding of the CbCR of the ultimate parent company to Hungary
  • automatic information exchange has been suspended between the country of residence of the ultimate parent company and Hungary.

Notwithstanding the above, no CbCR has to be filed if the multinational enterprise (“MNE”) group’s consolidated revenues are less than EUR 750 million in the preceding financial year.

4. Is the content of the CbCR fully in line with the OECD model (final report on Action 13 of the BEPS project)? If not, what are the differences?

Essentially yes.

5. What is the penalty for failing to file the CbCR on time? Can local subsidiaries of a foreign group suffer the local penalty if the foreign group has not filed the CbCR?

The penalty for non-filing or for the filing of incomplete, wrong or false data, as well as for late filing, and the failure to report statutory data (e.g. on the fact that the Hungarian entity is obliged to prepare the CbCR etc.) could be up to  HUF 20 million (approximately EUR 51,620); unless the entity obliged to file the CbCR justifies that it acted with as much due care as could be expected in the given situation.

The local subsidiary of a foreign group could be penalised only if it was directly liable for the filing of a CbCR in Hungary. Otherwise, the local subsidiary cannot be held liable for non-compliance committed by another group member.

6. Are there tax treaties in force allowing the communication of CbCR with other jurisdictions?

The general exchange of information clauses in the double tax treaties are available for this purpose. In addition, the automatic exchange of information rules provided under Council Directive (EU) 2016/881 of 25 May 2016 amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation have also been incorporated into Hungarian legislation as from 31 May 2017. Furthermore, Hungary signed the Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports on 1 December 2016, i.e. it is obliged to automatically provide CbCR data to the relevant signatories to this Agreement.

7. Any other relevant aspect not addressed above?

N/A 

C. As the case may be, other documentation / filing requirement in relation to transfer pricing?

1. Are there any other documentation/filing requirements in relation to TP?

The name, seat and tax number of each related entity with whom a contractual relationship is established have to be reported to the HTA within 15 days. Similarly, termination of being related to such party also has to be reported within the same deadline.

Cash payments in excess of HUF 1 million (approximately EUR 2,580) have to be reported to the HTA within 15 days.

2. If so, what is the content of such documentation / filing requirement? What language(s) are to be used by taxpayers?

The necessary data (including the name, seat and tax number of the related party) has to be reported to the HTA in writing, by completing an official form standardised for reporting changes in Hungarian.

3. What is the deadline for meeting this documentation / filing requirement?

The form has to be submitted within 15 days of entering into a contract with the related party for the first time. The termination of a related party relationship also has to be reported within 15 days.

4. Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?

The obligation affects all taxpayers that conduct the abovementioned transactions with related parties.

5. What is the penalty for failing to meet this requirement on time?

A default penalty of up to HUF 500,000 (approximately EUR 1,290) can be levied for non-compliance with the above reporting obligation.

6. Any other relevant aspect not addressed above?

N/A