Worldwide transfer pricing reference guide 2014

Hungary (continued)
Priorities/pricing methods
The OECD Guidelines were amended in July 2010. The Act on CIT has implemented them effective 1 January 2011. Accordingly, the
three traditional methods (CUP, Resale Price and cost plus) and the profit-based methods recommended by the OECD (i.e., TNMM
and Profit Split) are now practically equivalent. Other methods can also be used, but only subsequent to the rejection of the five
major methods.
Transfer pricing penalties
In relation to a tax base adjustment, a penalty of 50% of the unpaid tax may be imposed, as well as a late payment interest charge at
double the prime rate of the National Bank of Hungary, in line with general rules. A default penalty of up to HUF8 million (approximately
EUR26,500) may be levied for not fulfilling, or not properly fulfilling, the content and formal documentation requirements. As a general
rule, the default penalty is levied for each set of documentation per fiscal year under tax audit.
Penalty relief
Currently, no penalty relief is available.
Documentation requirements
The Act on CIT states that companies that do not qualify as small enterprises (small enterprises are defined as employing fewer than
50 persons and having less than EUR10 million in total turnover on a consolidated basis) must document the methods they used to
determine the fair market prices, as well as the facts and circumstances supporting them. The detailed documentation obligation must
be applied for all related party agreements in effect in the tax year. The details of the documentation obligation are regulated by Decree
22. Foreign entities (usually foreign taxpayers engaged in business activities through a Hungarian permanent establishment) are also
subject to the documentation obligation. However, transfer pricing rules are not required to be observed where the CIT base would not
change even if a non-arm’s length price was applied (if the income attributable to the foreign permanent establishment is exempt from
Hungarian tax, based on the applicable double tax treaty).
Overall, the Hungarian transfer pricing documentation requirements are consistent with the OECD Guidelines. The following list outlines
the compulsory elements of the Hungarian full-scope transfer pricing documentation:
• Name, registered seat (official location) and tax number (or company registration number and the name and seat of the registering
authority) of the related parties participating in the related party transaction under review
• Content of the agreement with the related party, which includes:
• Subject of the agreement
• Signing date (amendment date) of the agreement
• Period during which the agreement is effective
• Characteristics of the service provided and/or goods sold (functional analysis)
• Method and terms of the fulfillment of the agreement
• Analysis of the relevant market (industry analysis)
• The method applied for establishing the arm’s length price
• Reasons for selecting the method applied
• Description of comparable services and goods transactions
• Factors affecting the arm’s length price, margin or profit and the extent of any necessary adjustments
• The arm’s length price, margin or range
• Information on tax rulings or official and court procedures in progress relating to the given transaction
• Preparation and amendment date of the documentation
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