Transfer pricing in Hungary: All you need to know
Transfer pricing is related to companies that need to comply with the regulations necessary for optimal investment management in Hungary.
Hungary’s applicable regulations are very strict in comparison with international standards, and for that reason, the risk of taxation is significant. This is due to tax inspections tending to attach a special significance to the exploration of transfer prices between affiliated companies that reflect conditions prevailing in markets and how taxpayers pay these prices.
everything you need to know about transfer pricing policies in Hungary
Find out everything you need to know about transfer pricing policies in Hungary, so as not to incur risks and remain compliant.
- The characteristics of transfer pricing in Hungary
- Transfer pricing documentation: What Hungarian legislation requires
- The characteristics of the “Masterfile” and the “Countryfile” (internal link to the text anchor)
- Other details on documentation (internal link at the anchor of the text)
- Deadlines for transfer pricing documentation in Hungary (internal link at the anchor of the text)
- Language details (internal link to the text anchor)
- Transfer pricing assistance: ITL Audit services (internal link at the anchor of the text)
- Transfer pricing calculation methods in Hungary
The characteristics of transfer pricing in Hungary
The Hungarian government pays a great deal of attention to transfer pricing actions in Hungary.
Indeed, it is increasingly frequent that subsidiary companies decide to transfer their income to the parent company in Hungary, especially after the advent of the Flat Tax approved by Hungary’s parliament…
This focus is placed, above all, on those companies that use transfer policies as a tool to evade tax and take advantage of taxation in Hungary, seen by some as a “tax haven”.
It is, therefore, essential to identify and check the normal value of the goods marketed by the company and to verify that the transfer prices of the goods comply with the value established by Hungarian legislation.
Affiliated companies in Hungary face the recurring annual task of creating transfer price records, and, as a consequence of the strict Hungarian regulations, the “transfer pricing know-how” accumulated at the local level allows us to create documentation that can form the basis of not only the Hungarian local business, but also the overall documentation of the international corporate group.
Specifically, we make these transfer pricing services available to companies in Hungary:
- Review and creation of annual transfer pricing records
- Consulting services to establish transfer pricing policies for companies and corporate groups
- Development of transfer pricing policy: consultancy services to help companies carry out their price transfer activities independently, using their long-term resources
Transfer pricing documentation: What Hungarian legislation requires
In 2017, the Hungarian legislation governing transfer pricing operations underwent two main changes:
- A new decree, no. 32/2017. (X. 18.) of the Ministry for the National Economy, on the Documentation Requirements Relating to Transfer Pricing, which replaces a previous decree, no. 22/2009. (X. 16.)
- Law XXXVII of 2013, in which some regulations on international administration have been updated, with reference to the taxation system
Since the commencement of the new regulations, a further provision regarding transfer pricing documentation has also been introduced. In fact, two main documents are envisaged that regulate these operations, a “Masterfile” and “Countryfile”, also called national documentation.
Characteristics of the “Masterfile” and the “Countryfile”
Since the commencement of the Decree 32/2017 (X.18.) of the Hungarian Ministry of the National Economy, two documents have been introduced that regulate transfer pricing actions in relation to Hungary: the “Masterfile” and the “Countryfile”.
The “Masterfile” is a document within which the common characteristics and corporate strategies relating to transfer operations are found.
The “Countryfile” contains all the contractual details relating to the local subordinate company and the market prices adopted for the transactions between it and the parent company.
Specifications on transfer pricing documentation in Hungary
There are some specifications that regulate the transfer of assets or capital in Hungary, in particular on the documentation. The requirements you need to pay attention to are the following:
- The free competition value of the transaction does not exceed HUF 150 million ( €470,000) calculated in the fiscal year.
- The revenue resulting from taxation does not exceed 5% of the sales revenues from the supply service.
- The cost of the transaction does not exceed 10% of the operating costs and expenses of the recipient of the service.
- The remuneration for the free competition is established according to the increased cost method.
- The mark-up percentages applied to the operations are between 3% and 7%.
Other details on the documentation
The legislation relating to transfers obliges companies to prepare the documentation with a separate reference to the pricing policies adopted.
In reference to taxation, the decree also offers the possibility to draw up the consolidated documentation for the operations between the subsidiary company and the parent company, but only in compliance with some conditions:
- If there are no significant or impacting differences in the agreements between the parties involved.
- If the agreements between subjects/companies are closely related, except comparability.
In the event that a company chooses to prepare the consolidated documentation, then it will also be necessary to specify the reason within the documentation itself.
Deadlines for transfer pricing documentation in Hungary
Calendar year taxpayers must complete the corporate tax return procedure by the 31st May, while for taxpayers who decide to present the transfer pricing documentation on dates other than the calendar year, the last date of presentation of the documentation corresponds to the last day of the 5th month following the year-end date.
Details on languages
It is possible to draw up the documentation related to transfer pricing in languages other than Hungarian. But also keep in mind that if the tax authorities request it, it could be necessary to present the translated documentation in the Hungarian language.
Transfer pricing assistance: ITL Audit services
If you want to manage your transfer pricing operations in complete serenity and safety, our team of ITL Audit professionals (internal link to the team) offers support for:
- Pragmatic training on the specifications of the transfer pricing documentation
- Analysis of transaction prices and transfer prices to determine the real market value
- Identification of tax authorities’ and NAV control practices
Our consultants are also fully prepared to deal with issues related to cash pool transactions and the characteristics of group loans and how they affect market interest rates.
The first step to effectively manage a transfer pricing operation is in fact to have a 360 ° preparation, to allow you to find the best solution to customer needs.
Transfer pricing calculation methods in Hungary
The calculation methods for the transfer pricing procedures in Hungary are those regulated by Hungarian legislation, where the specifications on the transfer prices are also found.
Specifically here are the application methods:
Comparable uncontrolled price method (CUP)
Resale price method
Method of cost increase
Net transactional margin (TNMM) method
According to Hungarian legislation, there is no preferable application method to another, but the most appropriate method is considered based on the circumstances.
Request an appointment with our team of professionals and find out how to effectively manage transfer pricing operations in Hungary.
The basis of effective collaboration is most certainly communication, and that’s why our professionals are always at your disposal.
Each issue has its own value, history and source. The task of a good auditor is to extrapolate all of the useful information from the numbers in order to prevent problems and discover new opportunities
Entrepreneurs can sleep sweet dreams thanks to ITL Audit: their companies are in good hands. A financial report can only be truly verified when a thorough audit is carried out in line with international standards.
A successful and transparent audit also represents a guarantee for suppliers and clients. The rules are the same in Europe. Don’t underestimate a problem until it’s too late! Moreover, transfer pricing laws are extremely severe. We’ll carefully draft your documentation and prepare your internal regulation.
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