In recent years, transfer price audits have become increasingly prevalent and targeted in Hungary. This change is driven by the fact that, since the tax year 2022, companies have been required to provide detailed, structured transfer pricing data as part of their corporate tax returns, which NAV uses for risk analysis and for selecting which companies to audit. The tax authority also emphasized transfer pricing in its 2024 and 2025 audit plans, calling special attention to the conciliation and quality of the document and the data submitted.
NAV uses the submitted structured data to carry out precisely targeted audits. It selects from among taxpayers on the basis of the reported data and the patterns, transaction types, and pricing methods outlined in the returns, with audits doing more than just focusing on high-volume transactions.
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.
Experiences show that technical knowledge concerning transfer pricing is continuously on the rise at the companies concerned, which are increasingly circumspect in the matter, with an increasing number of specialized employees responsible for the tasks in question. Though the trend is positive and the improvement is tangible, there are still many mistakes and shortcomings in both form and content, which NAV will quickly detect in its tax audits.
Many of these are recurring, easy to categorize, and, thanks to Andersen Transfer Pricing Diagnostics, can be quickly identified and then remedied with support from consultants. Here are some of the most common mistakes.
#1: Incorrect Geographical Filtering During Benchmark and Database Research
International database searches that do not focus on Hungary are not conducted using the appropriate methodology and do not follow the internationally accepted guidelines or those issued by the Hungarian tax authority. In this case, the geographical filter should, according to the recommendations, start by filtering for Hungary and then, if the number of comparative companies is insufficient, it can be expanded to include first the V4 countries, then Central Europe, followed by the EU27 Member States (+U.K.) and ending with a global search. Why is this important? Incorrectly setting the geographical filter may result in a distorted range and incorrect conclusions regarding profitability due to shortcomings in comparability.
#2: Failure to Supply Sufficient Details for Manual Filters
The Transfer Pricing Catalyst is one of the most frequently used databases and was developed to determine and check market pricing, explicitly with an eye on the needs of tax experts. However, its independent filter is not always flawless regarding which company qualifies as an affiliated undertaking. The filtered results should always be checked, for example, by verifying the results using the information available on the websites of the given companies. However, many transfer pricing consultants forego this step to save time. This leads to many affiliated undertakings remaining in the filtered results, both in the case of Hungarian and foreign companies, which is a general mistake. Not only does it negatively impact the reliability of the benchmark, which results in the imposition of a fine, but it also leads to an inexact interquartile range that may even lead to a tax difference.
#3: Failure to Examine Activities
Another typical shortcoming in benchmark research is a failure to thoroughly examine what a company included in the filtered list actually does. Among others, this raises the following questions:
• What is the company’s main activity?
• What other activities does the company perform?
• What is the company’s functional profile for the activity(-ies)?
• How are these linked with the activity being examined or the activity being verified for transfer pricing purposes?
If we do not have exact answers to the above questions, the risks described in point 2 are quick to arise.
#4: Definition of Characterization
In many cases, the characterization and role of the companies participating in the given transaction are not correctly determined in the course of the functional analysis. This leads to a fundamental issue, as characterization determines the transfer pricing methodology used to determine the arm’s length price, as well as the selection of the profit level indicator.
#5: Formal Criteria of Transfer Price Documentation
In 2023, new rules entered into effect for the structure and content of transfer pricing documentation. One important change is that the local document has to be prepared differently from before. It should be broken down into two parts: a common (taxpayer) section and a transaction-level section. A common mistake is that companies do not prepare the documentation on the basis of the applicable rules and, for example, fail to correctly separate these two parts within the local document. Sometimes they also fail to take into account the more stringent rules on consolidation (for example, procurement vs sales).
#6: Inconsistencies Between Main Document and Local Document
It often happens that the narrative (supply chain, roles, intangible assets, transfer pricing policy, etc.) of the group-level master file prepared by a foreign consultant is contrary to the findings of the local file drawn up by the local consultant. However, the coherence of these two documents is a fundamental requirement: optimally, the master file is the basis, and the local file is an “imprint” of it, supported with local facts and figures. Deviations are permitted in justified cases only and with a reasoned explanation.
A penalty may be imposed for failing to comply with the obligation to prepare transfer pricing records and even for the preparation of records containing incorrect data. The fine can be up to HUF 5 million per record, with up to HUF 10 mln per record possible for repeat offences.
It is important to note that the term “record” was also amended starting from 2023. Previously, there was only one transfer pricing record, and it consisted of a master file and a local file, meaning that the fine could only be imposed once. However, after the amendment, the master file and the local files, which have to be prepared separately for each transaction, qualify as separate records, increasing the risk of omission penalties.
Our experts have a wide range of experience in determining the arm’s length prices of transactions between affiliated undertakings, which is why we offer our customers a comprehensive transfer pricing service package. This includes our Transfer Pricing Diagnostics service, which helps quickly identify typical mistakes such as the ones listed above, minimizing the risk of a hefty tax penalty.
Advantages:
• Immediate status report on compliance with the transfer pricing methodology
• Timely identification of risks
• Recommended solutions for identified transfer pricing mistakes.
According to the assessment of the prestigious international tax magazine International Tax Review, Andersen Adótanácsadó Zrt. was the best performing transfer pricing advisor in Hungary in 2024, which is why it was named TRANSFER PRICING FIRM OF THE YEAR.
This article was first published in the Budapest Business Journal print issue of October 31, 2025.
Producing journalism that is worthy of the name is a costly business. For over 30 years, the publishers, editors and reporters of the Budapest Business Journal have striven to bring you business news that works, information that you can trust, that is factual, accurate and presented without fear or favor.Newspaper organizations across the globe have struggled to find a business model that allows them to continue to excel, without compromising their ability to perform. Most recently, some have experimented with the idea of involving their most important stakeholders, their readers.
We would like to offer that same opportunity to our readers. We would like to invite you to help us deliver the quality business journalism you require. Hit our Support the BBJ button and you can choose the how much and how often you send us your contributions.
