The transfer pricing documentation obligation, in other words, the regulation on recording related-party transactions, affects almost 20,000 companies in Hungary. Significant changes entered into effect in 2022. Transaction and partner-level transfer pricing data now have to be reported in the company tax return, requiring companies to submit substantially more complex and structured data reports to the tax authority than before.
The Tax and Customs Administration (NAV) has a highly accurate means of control through the structured collection of transfer pricing data, which provides it with up-to-date information on the players’ pricing, profitability, and profits. This enables cross-checking and detecting systemic errors while supporting risk analysis, making a significant overall contribution to more effective control activity. With these methods, the tax authority can now use algorithms to automatically filter the data to identify transactions where the pricing or volume differs from the norm.
The first year following the introduction of the amended rules was considered a leniency period; errors and internal discrepancies in data reporting did not in themselves result in a fine, except for significant tax differences. This period is over, as shown by the increased number of controls and the sanctions imposed. NAV has not only learned to process the received data and utilize its new control tool but also seems to be enjoying its use.
This means the data, the analysis methodology, and the technology are all available, and the tax authority is now devoting energy to developing its team of experts.
Based on feedback from the affected companies, it can be determined that NAV is using the new control method to focus on more than just larger, multi-million transactions. Thanks to the structured data reporting-based risk analysis, all transactions are now in the crosshairs. It is also apparent that, in addition to examining the quality of the data reporting, tax controllers are also endeavoring to gain a deeper understanding of the transactions and the participating parties.
It should also be stressed that control is almost certain if an affiliated undertaking consistently generates losses while the whole group is profitable. While this had always been a potential trigger for tax control, since introducing the new regulations, NAV has been attributing even greater weight to such conditions.
Experience shows that auto industry suppliers receive higher-than-average attention in transfer pricing controls. Pharmaceutical and industrial manufacturing companies are also subjected to more frequent controls, as are Hungarian companies with distributors in foreign countries.
The related penalties have also become more stringent since 2023: they can now be imposed separately per record, almost on the level of individual transactions. A company that fails to prepare records is fined HUF 5 million, which rises to HUF 10 million for repeat offenders. These penalties may even be imposed more than once per tax year. This is combined with the penalty that can be imposed if a tax shortage is determined (up to 50% of the shortage) and the late penalty.
This article was first published in the Budapest Business Journal print issue of March 7, 2025.
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