For a few years the Hungarian tax authority has paid special attention during tax audits to compliance with obligations concerning the documentation of transfer prices. The applicable methods are the following:
- comparative price method
- resale price method
- cost and income method
- transactional net profit method
- profit-sharing method
- any other method (if justified)
The requirements relating to documentation have been greatly simplified in the recent past. In the case of transactions below HUF 50 million, the market price does not have to be documented. In the case of certain services within a company group (IT, accounting, administration) simplified documentation can be prepared if certain conditions are met.
However, effective 2015, enterprises (persons) are defined as associates if they have the same management, regardless of the ownership structure.
The tax authority penalises violation of the rules on transfer prices with a higher than average fine.
Country by country reporting
On 1 December 2016 Hungary joined countries, which have already implemented Country-by-Country-Reporting. The regulations are currently in form of draft legislation.
The CbCR is intended to be base of a risk assessment performed by the tax authority, transfer-price adjustment should not occur based on the CbCR.
In Hungary firms are obligated to create CbCR in the following cases:
- the ultimate parent of a multinational company group is resident for tax purpose in Hungary,
- the Hungarian member of a multinational company group, when there is no CbCR obligation for the ultimate parent,
- if there is no parent company, which would be obligated to create CbCR on behalf of all member companies with tax residency in the EU.
Multinational company groups with consolidated revenues lower than EUR 750,000,000, are exempted from the report.
For the first time, ultimate parent companies with tax residency in Hungary are obligated to create the CbCR of a financial year beginning on or later than 01.01.2016 within 12 months. Hungarian members of the group have to provide data for the first time about the financial year starting on or later than 01.01.2017.
Member companies have to provide CbCR data for the Hungarian Tax Authority until the last day of the financial year beginning on or later than 01.01.2017, even if they are exempt from CbCR report as member of a multinational company group.
CbCR report with insufficient data may be subject of penalty up to HUF 20 million.