Related Parties and Transfer Pricing: When Is Transfer Pricing Documentation Required?

Transfer pricing rules do not apply to every business; however, where a related-party relationship exists, companies are required to apply transfer pricing rules, and transfer pricing documentation must also be prepared depending on the value of the transaction. The Hungarian Tax Authority (NAV) is increasingly scrutinizing whether companies manage related-party transactions appropriately and whether their documentation complies with applicable legal requirements.

What Is a Related Party?

A related party is an entity that is linked to another company through ownership, control or personal relationships. Under international standards, an ownership interest of 25% may already constitute a related-party relationship, whereas under Hungarian law such a relationship generally arises only where the ownership interest exceeds 50%.

Typical examples:

• Parent companies and subsidiaries
• Sister companies under common ownership
• Companies under common management
• Foreign companies and their Hungarian permanent establishments, or Hungarian companies and their foreign permanent establishments

It is important to note that a related-party relationship may be established not only on a formal basis but also on a functional one – for example, where there is overlap in decision-making. Under Hungarian transfer pricing rules, common management automatically gives rise to a related-party relationship, regardless of the companies’ ownership structure.

When Do Transfer Pricing Obligations Arise?

Where a company enters into a transaction with a related party – such as the sale of goods, the provision of services, financing arrangements, the licensing of intellectual property or the charging of management fees – transfer pricing obligations arise. It is important to note that the arm’s length nature of the transaction must be substantiated regardless of the value of the transaction. Accordingly, a benchmarking analysis must be prepared for each related-party transaction.

The obligation to prepare transfer pricing documentation arises where the value of the transaction exceeds the applicable annual threshold (e.g. the threshold has been HUF 150 million per year since 2026, compared with HUF 100 million in previous years and HUF 50 million before that).

Exceptions – When Transfer Pricing Documentation Is Not Required

Although compliance with the arm’s length principle is a fundamental requirement for related-party transactions, the applicable legislation specifies a number of cases in which transfer pricing documentation (Master File and/or Local File) is not required. These exemptions generally relate to the taxpayer’s status (e.g. as an SME), the nature of the transaction or the value of the transaction.

• Micro and small enterprises: As a general rule, taxpayers classified as micro or small enterprises on the last day of the tax year are not required to prepare transfer pricing documentation or fulfil related transfer pricing reporting obligations.
• Transactions below the threshold: Where the arm’s length value of transactions carried out during the tax year under the relevant contracts (aggregated in accordance with the applicable aggregation rules) does not exceed the statutory threshold, no transfer pricing documentation is required. (The threshold may change from year to year; under the previous rules, it was typically HUF 100 million per year, but it will increase from 2026, meaning that fewer transactions will be subject to the transfer pricing documentation requirement.)
• Stock exchange transactions: No transfer pricing documentation is required for transactions qualifying as stock exchange transactions under the Capital Markets Act.
• Regulated prices / prices specifically prescribed by law: Where the price of a transaction is set by a competent authority or individually determined by law, no transfer pricing documentation is required.
• Transactions subject to an APA (Advance Pricing Agreement): Where the arm’s length price has been established by a decision of the Minister/NAV under an APA, no transfer pricing documentation is required for the relevant transaction during the term of the APA, provided that the facts and circumstances remain unchanged.
• The regulation also grants an exemption for contracts entered into with private individuals who are not acting as sole proprietors.
• Certain costs recharged without a profit element (cost pass-through): Where costs typically incurred from an independent third party are passed on at cost without any mark-up, transfer pricing documentation is either not required or is required only in a simplified form..

Important: Most of the above exemptions provide relief only from the obligation to prepare transfer pricing documentation as required by the relevant regulation. This does not prevent the Hungarian Tax Authority (NAV) from examining, during an audit, whether the pricing between related parties complies with the arm’s length principle. Accordingly, it is advisable to maintain internal records supporting the legal basis for the exemption and the underlying calculations (e.g. transaction thresholds and aggregation rules).

Transfer Pricing Documentation – When Is It Required, What Does It Include and How Is It Prepared?

In this section, we provide an overview of when transfer pricing documentation must be prepared, what it should contain, and how the process should be structured to ensure that it can withstand scrutiny during a NAV audit.

• Related-party transaction + threshold: Transfer pricing documentation (Master File/Local File) is required where the value of transaction(s) with a related party exceeds the annual threshold, calculated in accordance with the aggregation rules set out in the relevant regulation.
• Deadline: As a general rule, transfer pricing documentation must be prepared by the date of submission of the corporate income tax return (typically 31 May for calendar-year taxpayers) and must be available for presentation to the NAV within a short period upon request.
• Annual update: The transfer pricing documentation and supporting calculations must be updated on an annual basis (e.g. financial data, actual results, comparable ranges, and relevant amendments to agreements)..
• Changes during the year: Where the business model, functions/risks, contractual terms or pricing policy change materially, it is advisable to review transfer prices during the year as well (particularly in the case of services, royalties and financing arrangements).

Under Hungarian regulations, transfer pricing compliance is generally required to be demonstrated at two levels (Master File and Local File), with additional reporting and data submission obligations potentially also applying.

• Master File: Presentation of the corporate group, its business activities and value chain, intangible assets and royalty policy, intra-group financing arrangements, consolidated financial information, and the group’s transfer pricing policy.
• Local File: Presentation of the Hungarian taxpayer, list of related parties, detailed description of transactions (including products, services, financing and licensing arrangements), functional analysis (functions–risks–assets), contractual framework, rationale for the selected pricing method, financial information and reconciliations, and documentation supporting the arm’s length price.
• Benchmarking/comparability analysis: Database searches or other benchmarking analyses performed to determine the arm’s length range (particularly for services, routine manufacturing and distribution functions, and financing transactions).
• Transfer pricing data reporting in the corporate income tax return: A separate obligation from, but closely linked to, the transfer pricing documentation required under the relevant regulation; the tax return generally requires the submission of information by transaction type (e.g. applied method, transaction value and arm’s length range).
• Country-by-Country Report (CbCR) – often described as the third tier of transfer pricing documentation: It applies only to large multinational enterprise groups (typically those with consolidated group revenue exceeding EUR 750 million) and is prepared under separate regulatory requirements.

Note: Certain multinational groups may also be subject to a public CbCR disclosure requirement under EU rules; however, this obligation is distinct from Hungarian transfer pricing documentation and must be assessed based on separate criteria, including different thresholds and deadlines.

1. Preparation of a transaction map: identify the related parties, then list the transactions actually carried out during the tax year (invoices, general ledger, contracts), and determine which transactions can be aggregated.
2. Data collection and organization of the contractual background: collect contracts, amendments, pricing appendices, and internal policies; in the case of services, it is particularly important to substantiate the performance and the economic benefit (benefit test).
3. Functional analysis: describe who does what (functions), what risks each party assumes, and what assets are used—this forms the basis for identifying the “tested party” and selecting the appropriate method.
4. Selection of method and indicator: choose the most appropriate transfer pricing method (e.g. TNMM, CUP, resale price method, cost and profit-based methods), as well as the profit indicator to be examined; justify why this is the most appropriate choice.
5. Benchmark and market range: perform a comparability analysis (database search/price comparison), establish a market range, and compare actual results to that range; if necessary, make year-end adjustments.
6. Documentation and internal controls: prepare the master file and the local file, reconcile them with accounting data, and establish clear responsibilities (who collects the data, who approves it, where it is stored, and how it is updated).

It is advisable to finalize the documentation by the corporate income tax filing deadline and to update it annually. During a NAV audit, the documentation (and the underlying contracts, calculations, and benchmark analyses) may be requested within the statute of limitations period; therefore, it is recommended to maintain the transfer pricing position in an organized manner for several years.

Common errors and audit experience

• Related-party relationships not properly identified
• Documentation incomplete or outdated
• Irrelevant or weak benchmark analyses
• Lack of economic justification for services
• Failure to use APA opportunities

NAV increasingly reviews management fees, intra-group services, and licensing arrangements, as these are high-risk areas.

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