Hungary: transfer pricing

From 1 January 2007, related parties will be able to apply to the Hungarian Ministry of Finance for advance approval of a methodology for establishing a fair market price in a future related party transaction and, if possible, the fair market price or price range to be used.

Approval will be valid for a limited period of between three and five years (with the possibility to extend it once only for up to a further three years), as long as there is no change in the underlying facts. Applications are subject to an administration fee and will take up to 120 days to be dealt with.

Businesses with a 31 December financial year end that are involved in transfer pricing may now be subject to intensive tax audits, following the expiry of their 31 May deadline for preparing transfer pricing documentation. Audits are a natural consequence of the documentation requirement introduced earlier and the 2005 survey into compliance with transfer pricing rules conducted by the Hungarian tax authorities.

The survey was intended to give the Hungarian tax authorities an overview of current transfer pricing compliance and practice, to remind taxpayers of the importance of maintaining adequate registers and to gather information about the most important difficulties that arise in practice.

The survey showed widespread awareness of the general transfer pricing regulations, perhaps because of the high penalties for non-compliance and the repeated public announcements that audits are to be carried out by the Hungarian tax authorities. Audit standards are also expected to rise to reflect increased investment by businesses in compliance and preparing professional transfer pricing records.