In such high-stakes situations with significant tax implications, a binding tax ruling (feltételes adómegállapítás) can offer a solution. This is the legal instrument under which the Minister responsible for tax policy – based on a detailed factual description submitted by the applicant – issues a binding determination in advance as to the tax consequences of a specific transaction or a contract template.

The importance of this instrument has been reaffirmed by the Curia (Hungary’s Supreme Court) in recent years. In a precedent-setting case, the Court held that the binding force of a binding tax ruling only ceases if the tax authority conducting the audit can prove a material difference in the facts and/or applicable tax law. Provided that both the factual circumstances and the legal framework remain unchanged, the tax authority may not deviate from the content of the ruling.

From the submission of the application for a binding tax ruling, an audit moratorium takes effect for the specific transaction until the 15th day following the final and binding decision. Thereafter, the binding force of the ruling lasts until the last day of the fifth tax year following its issuance, which can be extended once, by a further two years.

These provisions not only ensure legal certainty but can also facilitate the implementation of major projects. For instance, in the context of bank financing, it is a strong argument if the project’s tax risk can be officially reduced to a minimum. The long-term certainty is, however, counterbalanced by notably high procedural fees.

Rising procedural fees and the option of preliminary consultation – 2025 amendments

The summer 2025 tax package introduced further changes to the legal framework of binding tax rulings. Procedural fees have increased once again: the fee for the standard procedure is now HUF 10 million, for the expedited procedure HUF 14 million, and for rulings concerning a contract template HUF 12 million (HUF 16 million if expedited). As of 1 August preliminary consultation is available again at a fee of HUF 1 million. According to the legislator, the rising fees are intended to cover the costs of processing increasingly complex cases; however, they may prompt more businesses to reconsider whether to file an application at all.

The rules on preliminary consultations have also been clarified: the tax authority’s position expressed during the consultation, recorded in writing – while not legally binding – may serve as a starting point during the subsequent application process. This strengthens the practical value of the instrument, as the taxpayer does not start entirely “from scratch” in the official procedure. This approach can save both costs and time, while allowing the formal ruling application to be submitted with better prospects.

Other key amendments of the 2025 summer tax package are summarised in our following article: Summer 2025 Tax Package Adopted – WTS Klient.

Deadlines, remedies, and further considerations

The procedure is formal and strict: the general processing time is 90 days (60 days in expedited cases). No appeal is available; only judicial review may be sought. Professional (tax advisor) representation is mandatory during the process.

The application may relate to a future transaction, a transaction not qualifying as future (in which case only certain taxes are covered), a contract template, or VAT apportionment. Only a well-defined and unambiguous set of facts may be the subject of the application; general tax advice cannot be requested within this framework. The application cannot be accepted if there is a risk of past tax law violation or tax avoidance. Nor can it concern purely accounting questions.

Is it worth applying for a binding tax ruling?

The binding tax ruling remains one of the strongest legal certainty instruments in the Hungarian tax system, especially for high-value, complex, or cross-border transactions. While the 2025 summer tax package has increased the costs of the procedure, the clarification of preliminary consultation rules has made the preparatory stage of the process more transparent and effective.

Given the current level of procedural fees, it is advisable to base the decision on a thorough cost–benefit analysis, and in most cases, to first assess the chances of success via a preliminary consultation. With proper preparation and professional support, binding tax rulings can still provide the stable legal environment in which businesses can confidently make strategic decisions.

A Binding Tax Ruling bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

To prevent or mitigate potential tax audit risks, it is strongly advisable to carefully examine cost allocation, VAT deduction, and transfer pricing issues related to typical support services provided within multinational groups – such as IT, HR, accounting, or management services.

This is particularly important when group entities apply so-called “indirect invoicing” methods, where the consideration for services is allocated among group members based on a pre-defined allocation key (e.g. proportionate to revenue). In such cases, the link between the charged fee and the actual services received is often not transparent, which increases the risk that the tax authority may:

• increase the corporate income tax base of the cost-receiving company, and
• deny the related VAT deduction.

In several cases, tax authorities have even questioned the necessity or business rationale of certain services – often based on subjective criteria – and have challenged the invoicing of related costs. They may require the cost-receiving entity to prove the economic benefit and business relevance of the services.

Additional complexities may arise regarding the classification of management services as uniform or bundled services, which is primarily a transfer pricing issue. However, if not all parties involved are fully entitled to deduct VAT, the transfer pricing issue becomes a VAT matter as well.

What’s the Issue with Indirect Invoicing?

In practice, many companies face situations where tax authorities’ question:

• whether the company actually received the service from its related party, and
• if so, whether the allocated share of the cost genuinely served its own business activity.

This is especially common where the service – typically provided by the parent company – cannot be clearly linked to a specific performance or when the service was used by multiple group entities.

In recent years, the Hungarian tax authority has denied VAT deduction and expense recognition in several cases, arguing that:

• the service fee was not sufficiently substantiated, or
• it was not proven that the service served the Hungarian company’s economic activity.

What Does the European Court of Justice Say?

In the recent Case C-527/23 (Weatherford Atlas Gip SA), the Court of Justice of the European Union took a clear position on such cases.

Key ruling:
VAT deduction cannot be denied merely because:

• other group members also benefited from the service, or
• the service was not deemed “necessary” or “appropriate” – such terms reflect subjective judgement.

What matters is whether the service supports the taxable person’s own economic activity.

The Court confirmed that if the cost of the service forms part of the general overheads of the taxable person and is incorporated into the price of the goods or services it supplies, the right to deduct VAT exists in principle.

In our view, this logic also supports the eligibility of such costs for deduction as business expenses for corporate income tax purposes.

What Does This Mean in Practice?

VAT deduction and cost recognition for intra-group services used by multiple entities cannot be automatically denied.

There is no requirement to provide detailed cost allocation or prove the profitability of the individual transaction. Shared cost elements relating to services used by other group members do not preclude VAT deduction, as these are considered mere pricing components in determining the total consideration.

Tax authorities may request supporting documentation beyond the invoice, but only to a reasonable extent. Detailed evidence for every cost item is not required. However, appropriate documentation of internal services, clear explanation of the applied allocation key, and logical justification remain essential.

If your company receives services from within the group, it is worth seeking expert advice on the following:

• the validity and compliance of service agreements and invoices,
• the substantiation of indirect invoicing practices,
• documentation obligations regarding VAT deduction rights.

A thorough tax review can help identify and mitigate risks – before the tax authority does so.

To mitigate potential tax audit risks, it is recommended to carefully address cost allocation, VAT deduction and transfer pricing aspects of IT, HR, accounting and management support services provided among members of multinational corporate groups.

If you have any questions regarding the topics discussed, the tax advisory team of WTS Klient is always at your disposal.

This article provides general information and does not constitute advice.

A Intra-group Services bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.

This is exactly what our 22-page English-language publication – Employing People in Hungary – aims to support. It offers a comprehensive and accessible overview of the most important aspects of the Hungarian employment and tax environment.

What’s inside the publication?

The brochure guides readers step by step from the beginning of the employment relationship to the taxation of personal income. It provides detailed insights into key areas, including:

• Registration and labour contract: An outline of the administrative steps required to establish an employment relationship in Hungary, including the mandatory elements of a valid employment contract.
  
• Working time and holidays: Clarifies rules on working hours, overtime, holiday entitlement and national holidays – including both basic and additional holiday entitlements available to employees.
  
• Minimum wage: An overview of current regulations on the minimum wage and guaranteed wage minimum, along with their tax implications.
  
• Social security and taxation: Employment in Hungary entails various contribution obligations. The publication explains these in detail, helping employers understand their responsibilities regarding social security and health insurance contributions. From determining tax residency and calculating the tax base, to understanding tax allowances and tax-base allowances, our publication walks through the full scope of personal income taxation. Special attention is given to capital income and cryptocurrency taxation, tax allowances for families and individuals, tax rates and tax returns.

The contents of the brochure are regularly reviewed and updated by our tax advisory professionals, ensuring that it always reflects the latest legal environment. More than just a theoretical summary, the publication provides practical guidance, examples and checklists for immediate application.

Employing People in Hungary is available for download via the link below or by clicking on the image. Should you have any questions or need tailored advice, our experienced tax advisory team is happy to assist – whether you’re employing a single person or operating a full Hungarian subsidiary.

EMPLOYING PEOPLE IN HUNGARY 2025 – A useful summary from tax experts of WTS Klient (PDF)

A Employing People in Hungary 2025 is now available bejegyzés először WTS Klient Hungary | tax | accounting | payroll | advisory | HR services | digital solutions | state aid-én jelent meg.