Transfer pricing audit in Hungary: New challenges for related parties in 2025 | News Flash

Transfer pricing, and consequently transfer pricing audits, have become a key focus area for the Hungarian Tax Authority (NAV) in recent years. The introduction of the mandatory transfer pricing data reporting obligation in 2023 marked the beginning of a new era in the control of related party transactions. The authority is conducting increasingly strict and targeted audits, focusing not only on formalities but also on the substance of the documentation. It is essential for companies to maintain accurate and up-to-date transfer pricing documentation and to comply fully with the reporting requirements.

Why is transfer pricing important?

The purpose of transfer pricing is to ensure that the pricing of transactions between related parties adheres to the arm’s length principle. This principle ensures that tax bases are not artificially distorted and that profits are taxed where value creation occurs. Since 2023, the NAV has been examining not only the existence of transfer pricing documentation but also its content with particular attention to the data disclosed on forms ATP-01 and ATP-KV.

Authorities new approach to transfer pricing audit in Hungary

The NAV increasingly selects taxpayers for audit based on risk analysis. The structured data submitted through the reporting obligation enables the authority to identify potential risks as early as the time of filing. The NAV examines the submitted data not only for formal discrepancies but also compares it substantively with the transfer pricing documentation and accounting records.

If, during a tax audit, the NAV determines that the profit realized on a transaction does not comply with the arm’s length principle, it will make the necessary adjustment to the median value of the arm’s length range. This may result in significant tax deficiencies and penalties for the taxpayer under review.

Common mistakes and their consequences

Based on the experiences of 2024, several recurring issues have emerged:

• Discrepancies between transfer pricing documentation and submitted data, such as inconsistent terminology for methods or profitability indicators (e.g. TNMM vs. transactional net margin method in Hungarian).
• Misclassification of related party transactions, especially the confusion between codes “11 – limited-risk distributor” and “12 – limited-risk distribution service recipient,” which can distort the authority’s analysis.
• Inconsistencies in transaction values with accounting records, such as incorrect currency conversions or reporting total loan principal instead of interest.
• Failure to report related parties to the NAV, even though they are listed in the transfer pricing documentation.

Definition and importance of related parties

The definition of related parties is based on point 23 of section 4 of the Corporate Tax Act (Tao. tv.). Relationships may be established through ownership control, shared management, or even close family ties. NAV pays special attention to cases where control is exercised through identical management over multiple entities.

While the existence of a related party relationship does not itself trigger a reporting obligation, once the parties enter into a contract, the relationship must be reported to the NAV within 15 days of the contract date. Failure to report can result in penalties, especially if discrepancies are found between the transfer pricing documentation and NAV’s internal records.

Determining the arm’s length price

The core principle of transfer pricing is adherence to the arm’s length principle. The Corporate Tax Act and Government Decree 32/2017 (NGM) provide detailed rules for determining arm’s length prices, including the following methods:

• Comparable uncontrolled price method
• Resale price method
• Cost-plus method
• Transactional net margin method
• Profit split method

The transfer pricing documentation must include the selected method, its justification, and supporting facts and circumstances. The NAV pays particular attention to ensuring that the chosen method complies with legal requirements and that the indicators reported are consistent with the documentation.

What should companies expect from a transfer pricing audit?

The NAV’s aim is not only to penalize but also to promote compliance. In the initial two years, the authority focused on encouraging error correction. However, stricter enforcement is expected in the near future. Penalties are most commonly imposed for missing or seriously deficient documentation.

Therefore, companies should prioritize:

• Maintaining up-to-date transfer pricing documentation,
• Ensuring consistency between reported data and documentation,
• Timely and accurate reporting of related parties,
• Consistent application of the arm’s length principle.

Final thoughts on transfer pricing audit in Hungary

Transfer pricing audits have reached a new level in Hungary. The NAV’s targeted and data-driven audit practices pose new challenges for companies. Those who are unprepared may face significant risks and penalties. Accurate documentation, proper data reporting, and knowledge of the legal framework are now not just recommended, they are essential. To reduce or fully avoid transfer pricing risks, we recommend ongoing monitoring of applied transfer prices throughout the year and initiating the preparation of transfer pricing documentation in a timely manner.

Köő-Tóth Zénó

Senior Transfer pricing Specialist | Accace Hungary

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