The transfer pricing rules in Hungary changed significantly at the end of 2025. Although Decree No. 45/2025 (XII. 23.) of the Ministry for National Economy did not change the basic structure of the transfer pricing documentation, which continues to consist of a Master File and a Local File, it introduced more detailed requirements for the content of the Local File.
These changes are in line with the direction of the OECD Transfer Pricing Guidelines. The primary purpose of transfer pricing documentation is no longer merely to demonstrate compliance with legal requirements, but also to provide a clear picture of the economic substance of related-party transactions and to demonstrate that the applied transfer prices are consistent with the arm’s length principle.
More detailed documentation requirements
Under the previous rules, many companies followed the same documentation structure year after year and mainly updated the financial data or the results of the benchmarking analysis. Under the new decree, however, this approach alone may no longer be sufficient.
The Local File is now expected to provide more information about the business environment, the controlled transaction, and the role of each related party. From the tax authority’s perspective, it is no longer sufficient to describe what transaction took place. The documentation should also explain why the transaction was carried out in that way and demonstrate that the transfer pricing outcome is consistent with the functions performed, assets used, and risks assumed by each party.
Functional analysis becomes even more important
Functional analysis remains one of the most important parts of the Local File. However, the new rules require a more detailed analysis than before. The aim is to ensure that the documentation clearly demonstrates which party creates value in the controlled transaction and, consequently, what level of profitability is consistent with the arm’s length principle.
As a result, it is no longer sufficient to simply state that one company acts as the manufacturer while the other acts as the distributor. The Local File should also explain, among other things, which entity makes key business decisions, determines the pricing policy, finances inventory, bears inventory and credit risks, and is responsible for marketing activities.
This is particularly relevant where the business model has changed compared to previous years. For example, if a Hungarian subsidiary previously performed only sales activities but later became responsible for marketing campaigns, gained authority to approve customer discounts, or assumed additional business risks, these changes should be reflected in the functional analysis, as they may also affect the transfer pricing outcome.
A more comprehensive description of controlled transactions
Under the new rules, the description of a controlled transaction should include more than just the main terms of the contract. The Local File should also explain the business purpose of the transaction, how the transfer price is determined, and any significant changes that took place during the tax year.
This is particularly relevant where the contract itself has not changed, but the transaction has changed from a business perspective. For example, a broader product portfolio, revised payment terms, or a new pricing approach may all affect the transaction and should therefore be reflected in the Local File.
Benchmarking analyses require greater transparency
The new rules do not fundamentally change the methodology for preparing benchmarking analyses. However, they place greater emphasis on documenting how the benchmarking study was prepared and how the final set of comparable companies was selected.
In practice, this means that taxpayers should provide a more detailed explanation of the database used, the main elements of the search strategy, the selection criteria applied, and the reasons for any manual inclusions or exclusions. Clear documentation makes the benchmarking analysis easier to understand and helps support the company’s transfer pricing position during a tax audit.
A new explicit rule sets out that no companies with loss on EBIT level could be taken into consideration when making the benchmark analysis, which makes it even more difficult to explain if a company within a company group has negative profitability.
Financial information in the Local File
The new rules also place greater emphasis on supporting the financial information included in the Local File. One of the key requirements is the preparation of a segmented profit and loss statement, which clearly shows the revenues, costs, and profits related to the controlled transaction separately from the company’s other activities (transactions with unrelated parties).
This is particularly important where a company carries out different business activities or has both controlled and uncontrolled transactions. In these cases, the company’s overall financial results may not be sufficient to support the transfer pricing analysis. Instead, it may be necessary to prepare financial information that reflects only the results of the relevant controlled transaction.
Companies should therefore ensure that they have appropriate accounting records and internal data to identify the financial results of the controlled transaction. Where the selected transfer pricing method, such as the Transactional Net Margin Method (TNMM), requires transaction-specific financial data, a properly prepared segmented profit and loss statement may become an important part of the Local File.
Low value-added services
The new transfer pricing rules in Hungary also introduce special requirements for low value-added services, which would ease the details of the local file to skip several parts including the benchmark. A service can be characterised as low-value added service among others if the service plays not relevant part in the value chain of companies, the service is not provided for unrelated entities. In case of service provided, the net cost-plus mark-up must be at least 5%, while in case of services received the mark-up cannot be higher than 5%.
The link between the Local File and transfer pricing data reporting
The transfer pricing rules in Hungary also strengthen the link between the Local File and transfer pricing data reporting. Although the reporting obligation, submitted as part of the corporate income tax return, is not new, the revised rules make it even more important to ensure consistency between the Local File and the reported data.
The transfer pricing data reporting includes information such as the type and value of the controlled transaction, the related party, the transfer pricing method applied, the tested party, and the arm’s length range. As this information is largely based on the Local File, companies should ensure that the information in both documents is consistent. Any inconsistencies, for example, in the transaction classification, the transfer pricing method, or the transaction value, may attract the attention of the tax authority and increase the likelihood of a tax audit. Additionally, the tax authority builds data asset from the transfer pricing data submissions from the local entities, therefore based on the risk assessment of the tax authority it is easier to target risky companies to start a tax audit focusing on transfer pricing.
Conclusion
Although the revised transfer pricing rules in Hungary do not fundamentally change the existing documentation framework, they clearly raise expectations regarding the content of the Local File., it clearly raises the expectations for the content of the Local File. The new rules require companies to provide a more detailed and transparent description of their controlled transactions, supported by appropriate financial information and consistent transfer pricing data reporting.
For many businesses, this means that existing transfer pricing documentation processes should be reviewed to ensure they meet the new requirements. Companies that review their documentation processes and adapt them to the new requirements will be better positioned not only to comply with the revised rules but also to respond efficiently to future tax audits. Although the legislation is harmonised with the OECD TP Guidelines, in some cases the tax authority has a quite controversial interpretation, which can cause high risk for companies, who create their documentation solely using the Guidelines.
This article was prepared by ABT Treuhand for the ETL GLOBAL Transfer Pricing Group. Visit the group’s dedicated page to learn more and get in touch for further assistance.
