Why this matters

In recent years, the Hungarian Tax Authority (hereinafter: “HTA”) has steadily raised its expectations around transfer pricing compliance. Many of these expectations have so far existed only in the form of non-binding guidance.

The new Decree changes this dynamic. By incorporating many of the “best practice” expectations directly into legislation, the HTA obtains a clearer legal basis for risk assessment, audit selection and, where deficiencies are found, the application of adjustments and penalties.

What is changing? Key developments to watch

Local benchmarking becomes a legal requirement

One of the most impactful changes concerns benchmarking. The HTA has long challenged centrally prepared global or pan-European benchmark studies. The new Decree now explicitly requires taxpayers to rely on benchmarking analyses that follow Hungarian comparability standards — including a prescribed geographic hierarchy, the exclusion of loss-making companies, reliance on corporate-level financial data, and full traceability of profitability metrics to statutory accounts.

Where these expectations are not met, the HTA will rely on its own local benchmark study during audits. With the new legal framework in place, taxpayers will have very limited room to justify deviations from local requirements.

Stricter rules on segmentation and financial reconciliation

The Decree introduces more stringent rules around financial traceability and segmentation. Taxpayers will need to demonstrate a clear link between the profit level indicators used in the TP analysis and the Hungarian statutory financials. In practice, this means preparing segmented P&Ls for the tested transaction, reconciling management-report figures with local GAAP statutory accounts, explaining allocation keys and providing documentation that enables the HTA to reproduce the calculations.

Segmentation is and is likely to remain a major audit focus, which typically can be challenging for taxpayers who rely on centrally administered transfer prices.

Other significant developments

Alignment of transaction naming and characterization

To ensure full consistency between documentation and TP data reporting, the Local File must include the exact same transaction name as reported in the TP data reporting form, along with the relevant activity code.

The entity’s transfer pricing characterization must also be stated explicitly in the Local File. The previously common approach of using vague or more flexible descriptions will no longer be acceptable.

Expanded DEMPE analysis for intangibles

For all transactions involving intangibles, the Decree requires a more detailed functional analysis based on DEMPE functions (development, enhancement, maintenance, protection and exploitation). Taxpayers must demonstrate how these functions are carried out within the group, what assets and risks are involved and how these factors influence value creation. This represents a significant increase in documentation expectations for IP-related transactions.

Mandatory benefit test for intra-group services

For intra-group financial and non-financial services, the recipient taxpayers must be able to show and document that services received provide economic or commercial value, consistent with the OECD’s benefit test concept. This includes demonstrating the business rationale, expected or actual benefits and substantiating that an independent company would be willing to pay for the service.

Failure to do so can not only trigger TP adjustments but may also jeopardize the deductibility of the service fees for corporate income tax and VAT purposes.

Revised framework for low value-adding services

The Decree introduces a revised framework for low value-adding services, aligning the definition more closely with the OECD Transfer Pricing Guidelines and removing previous limitations based on value thresholds or activity codes. Where the taxpayer earns at least a 5% net mark-up on such services provided or is charged no more than a 5% net mark-up on services received, substantially simplified documentation requirements will apply, with several Local File elements no longer required and only limited TP data reporting applicable.

Updated thresholds and exemptions

Several thresholds and exemptions are being revised, including:

• Local File requirement starting from HUF 150 million, i.e., EUR 390 thousand per consolidated transaction;
• Master File exemption for taxpayers with less than HUF 500 million (EUR 1.3 million) of total arm’s-length related-party transaction (subject to Local File preparation obligation) value;
• Elimination of several exemptions, such as the transfer or receipt of funds without consideration transactions (preparation of a simplified Local File is now required).

Refined rules on transaction consolidation

The Decree confirms the general consolidation principles clarifying that incoming and outgoing transactions cannot be consolidated. In addition, the Decree introduces a new rule that transactions in the following groups must not be consolidated with each other: manufacturing, distribution, services, financial transactions and transactions involving intangibles.

Refinements to TP data reporting

The TP data reporting framework has been updated to reflect the new documentation rules. Changes include new and refined transaction categories, updated terminology for profit indicators and stricter alignment with Local File content.

What should companies do now?

Given the scale of these changes, multinational groups are encouraged to start preparing early. Key actions include:

• Reassessing benchmarking strategies and identifying where global studies may no longer be used under Hungarian law.
• Evaluating segmentation and financial data capabilities, ensuring reliable production of segmented P&Ls and full reconciliation to statutory accounts.
• Refreshing functional analyses, articulating characterizations and performing enhanced DEMPE analyses for all intangible-related transactions.
• Strengthening documentation of intra-group services, particularly around benefit test substantiation and supporting evidence.
• Considering early adoption for 2025.
• Updating TP processes and governance, ensuring that local teams are trained and that documentation workflows are aligned with the new requirements.

Conclusion

The introduction of the new Transfer Pricing Decree fits within the broader trend of tightening TP compliance requirements observed in recent years in Hungary. As the HTA continues to enhance transparency and strengthen its audit capabilities, taxpayers should anticipate increased scrutiny and a more rigorous review of TP positions. The evolving framework underscores the importance of timely preparation, robust documentation and proactive compliance to manage risk effectively for years still open for tax audit and for the years ahead.