In 2024, transfer pricing audits have reached record levels, accompanied by a substantial rise in tax base adjustments and penalties in Hungary. The Hungarian Tax Authority is using increasingly targeted and risk-based methods, requiring businesses to pay more attention than ever to the accuracy of their transfer pricing documentation and reporting.
Why has the number of transfer pricing audits increased?
Although overall tax audits are on a downward trend, the number of transfer pricing reviews is steadily increasing. This is mainly due to the introduction of transfer pricing data reporting, which enables the tax authority to select companies for audit based on risk analysis. The aim of the new system is to focus audits on businesses where intercompany pricing may deviate from the arm’s length principle.
The changing focus of transfer pricing audits in Hungary
Previously, the tax authority reviewed transfer pricing documentation as part of comprehensive tax audits. However, following amendments to the CIT Act, the introduction of transfer pricing data reporting has allowed for more effective selection for audit. The new system enables the tax authority to identify high-risk companies based on reported data, increasing audit efficiency and ensuring that tax investigations are conducted where there is a real risk of deviation from arm’s length pricing, for a specific period.
Key changes in transfer pricing audits:
- Growing number of compliance audits: The tax authority is placing greater emphasis on compliance audits aimed at identifying and correcting errors. While not all such reviews result in penalties, an increasing number of cases conclude with findings.
- Typical mistakes: Ignoring year-end adjustments items, incorrect completion of data reporting (e.g. values in HUF instead of thousands of HUF),and filling of ATP forms based on incorrect documentation.
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Transfer pricing: record penalties and rising tax deficits
Transfer pricing audits have led to a significant increase in the amount of tax base adjustments and default penalties in 2024:
Tax base adjustments
- 2022: HUF 58 billion
- 2023: HUF 43 billion
- 2024 (Q1, Q2, Q3): HUF 101 billion
Default penalty
- In the first three quarters of 2024, twice as many default penalties were imposed as in the entire year of 2023.
- By September 2024, the number of compliance audits had doubled, and the number of tax authority findings resulting from these audits increased fivefold compared to the previous year.
What does this mean for companies?
The tax authority is increasingly strict in monitoring tax base adjustments and the accuracy of transfer pricing documentation. Audits are becoming more targeted and in-depth, requiring companies to pay greater attention to data reporting.
Who are the key targets of transfer pricing audits?
The tax authority closely monitors companies it considers high-risk in terms of transfer pricing. The primary targets of audits include:
- Automotive suppliers
- Loss-making manufacturing companies
- Pharmaceutical companies
- Transactions involving intangible assets
Additionally, the tax authority is gathering more information for risk analysis from international data exchanges and business databases (e.g., CbCR, DAC6, DAC3, BEPS5, BvD-Moody’s TP Catalyst, Bloomberg).
How can companies avoid transfer pricing penalties?
Companies must focus on the following key areas:
- Accurate and timely preparation of transfer pricing documentation
- Properly completed transfer pricing data reporting
- Regular review and updating of transfer pricing policies
- Continuous monitoring of legislative changes and tax authority expectations
Those who fail to prepare in time risk substantial penalties and tax authority findings—therefore, proactive internal reviews and expert assistance are highly recommended.
