Transfer pricing rules in Hungary

Hungary as an OECD Member State has acknowledged that the arm’s length principle as defined in Article 9 of the OECD Model Tax Convention is the international transfer pricing standard to be used. The definition is published in the Hungarian legislation in Act LXXXI of 1996 in Section 18 of the Hungarian Corporate and Dividend Tax Act (CDTA), accordingly: „The arm’s length price is the price at which a willing buyer and a willing unrelated seller would freely agree to transact”. 

The prices used between related companies must be documented according to the regulations of the Hungarian Ministry of Finance. (18/2003 Ministry of Finance operates to 1 January 2010, 22/2009 Ministry of Finance take effect on 1 January 2010). The regulation 22/2009 which came into force on 1 January 2010 modifies the rules how to make transfer pricing documentation. These modifications are reviewed in our letter.

The definition of the associated enterprises

Based on the provision of the Section 4 of the Hungarian Corporate and Dividend Tax Act (CDTA) two companies are affiliated, if one of them has major influence in the other one, or an third company has major influence in the both one.

One company – among others – has major influence in another company, if

• it is the majority shareholders (more than 50%)
• it has right to nominate the major of the company leaders.

How has to prepare transfer pricing documentation?

Based on the relevant decree all the company, who is not a Small or micro enterprise, has to prepare transfer pricing documentation, if it make any transaction with one of their affiliated company in the relevant year.

We help you avoid the taxation risks

Failure to comply with the Hungarian transfer pricing documentation regulations is leads to default penalty (currently 2 M HUF). According to the explanation of the tax authority the above mentioned amount must be understood per contracts (not per documentation).

Transfer pricing adjustments (assuming they are in favour of the tax authority) could not only increase the tax liability of the taxpayer but also result in a tax penalty of 50% on any additional tax payable plus interest on late payment of tax at twice the base rate of the National Bank of Hungary. Regarding transfer pricing it has to take into account the risk of double taxation when a ‘corresponding adjustment’ is not accepted by the partner.

The following link contents more details about our transfer pricing services:

Transfer pricing services.pdf

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