The birth of a child is always a joyful and exciting time in a family’s life, but it also comes with many challenges and can bring significant financial changes. Therefore, it is definitely worth examining what support and benefits parents will be entitled to. Thanks to previous legislative changes, paternal child care benefit is also available in Hungary, meaning that under certain eligibility conditions, not only the mother but also the father can claim the child care benefit (gyed). Therefore, it should be considered which parent should take advantage of the support.

Since the law also allows the parent to work for unlimited period while receiving gyed, choosing paternal child care benefit, i.e. the father claiming gyed, seems like a logical decision. It may happen that the father wants to stay home with the child and the mother returns to work, but typically parents use the paternal child care benefit option if the mother’s income is lower than the father’s or if the mother would only be entitled to child care allowance (gyes).

Who is eligible for gyed and for how much?

An insured parent who has been insured for 365 days within the two years preceding the child’s birth is eligible for gyed.

There is a maximum amount for gyed, which is up to 70% of twice the current minimum wage per month. In 2025, this upper limit is a gross monthly amount of HUF 407,120. From the amount of gyed, 15% personal income tax advance and 10% pension contribution are deducted. If the minimum wage increases, the maximum amount of gyed also increases.

For which time period is paternal child care benefit available?

If the mother was entitled to infant care benefit (csed), then paternal child care benefit can start from the day after the csed expires, or from the day after the corresponding period (168 days) expires, until the child reaches the age of 2, or in the case of twins, until the children reach the age of 3.

If the mother was not entitled to csed, then paternal child care benefit starts from the 169^th day after the child’s birth.

If the father meets the eligibility conditions, the parents can decide at any time to cancel the gyed/gyes already granted to the mother and the father can claim it instead.

How can the father apply for gyed?

To apply for paternal child care benefit, the father must first submit the “Application for childcare allowance” form to the employer. Following this, the employer submits the “Claim for cash benefits from health insurance and sick pay after accidents, as well as cash benefits available on a discretionary basis (EB_IGBEJ_01)” form electronically to the health insurance fund via the SZÜF portal.

The following documents must be attached to the claim:

• the “Application for child care benefit” form filled by the father,
• a copy of the child’s birth certificate,
• a copy of the child’s social security card (TAJ card).

It is very important that if the father submits the claim for gyed while the mother is receiving gyed or gyes, the mother must cancel it:

• in the case of gyed, using the “Application for cancellation of child care benefit” form,
• in the case of gyes, by submitting the “Cancellation of family support benefit” form.

If the mother is not receiving gyes, the decision on this must also be attached to the paternal child care benefit claim.

Can paternal child care benefit be claimed retroactively?

Paternal child care benefit can also be claimed retroactively, which usually occurs if the parents decide later that the father should take advantage of this benefit. Gyed can be claimed retroactively for up to six months from the date of the claim, meaning that the benefit can be established and paid from the first day of the sixth month preceding the date of the claim, provided the eligibility conditions are met.

If the father claims gyed retroactively and the mother received gyed or gyes for this period, the mother must repay the amount of gyed or gyes received to the government office or to the bank account provided by the employer if it is a social security paying agent.

Another way to repay is if the father agrees on the “Claim for child care benefit” form that the amount received unlawfully will be deducted from the paternal child care benefit, and only the difference will be paid to the father.

From the above, it follows that if the mother not only receives gyed but also gyes, even for an older child, she must cancel it because only one of them can claim the benefit. According to the law, all benefits must be in one hand.

Considerations for choosing paternal child care benefit

In the long term, there are many factors to consider before parents decide to have the father take gyed, as this choice can have both advantages and disadvantages. These disadvantages and considerations can include:

• The mother is on unpaid leave from her job to care for her child (has not returned to work), and since it is the father who receives the benefit, the mother’s insurance is suspended from the first day without benefit.
• The mother is required to pay the individual health service contribution to the Hungarian tax authority during the suspension period. In 2025, this monthly amount is HUF 11,800, which is HUF 390 per day. The mother must handle this independently, the employer only informs her of this obligation.
• The employer reports the start and end of the insurance suspension to the Hungarian tax authority on the T1041 form.
• During the suspension of insurance, the mother is not entitled to sick pay in case of incapacity for work.
• If the mother’s insurance suspension exceeds 30 days, her continuous insurance period is interrupted, and the calculation of the time spent in insurance only resumes when she returns to work. She will only be entitled to sick pay based on the number of days spent in insurance after the interruption.
• In addition to the suspension of insurance, the mother also suffers a significant disadvantage in another area, which is that this period will not be counted in the number of years in employment for her future pension due to the lack of benefits.
• Last but not least, it is worth considering the case when the mother does not return to work and plans to have another child. In this case, the mother will not be entitled to csed, and the father cannot be entitled to csed anyway. In this case, the mother – due to the lack of income to be considered and the interrupted insurance relationship – will be entitled to gyes instead of csed from the birth of the child for 168 calendar days, and after this period expires, the father can claim gyed again for this child if he still meets the eligibility conditions.

However, choosing paternal child care benefit is not a disadvantage, if the mother wants to return to work, she will be entitled to leave (for the period of maternity leave and the first six months of unpaid leave taken for childcare) regardless of whether she received gyed.

Furthermore, choosing paternal child care benefit does not disadvantage the mother in calculating a possible severance pay, as the period of maternity leave and unpaid leave taken for childcare must also be taken into account, regardless of whether she received gyed.

Let’s plan consciously for the long term!

It can be financially advantageous for the family if the father takes gyed. However, as our article reveals, it is worth thoroughly considering the questions surrounding the mother’s insurance relationship, especially if the mother does not return to work and the family plans to have more children.

The information collected in our article is general and informative; in reality, each case must be examined individually. For questions regarding individual cases, please contact us with confidence. The experienced payroll experts at WTS Klient Hungary will help our clients find the most optimal solution with personalised advice.

This article provides general information and does not constitute advice.

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Conceptual clarifications

By modifying the Hungarian Corporate and Dividend Tax Act, the proposal clarifies the definition of arm’s length price and the arm’s length range in connection with transfer pricing. The newly introduced concepts are in line with the definitions of the OECD Transfer Pricing Guidelines, which were already considered authoritative anyway, so their introduction only represents a technical, not a substantive change.

New transfer pricing data reporting obligation in Hungary

According to the new transfer pricing rules, taxpayers subject to the transfer pricing documentation obligation must also report data in connection with determining arm’s length prices in their corporate tax returns. Taxpayers have already had to prepare their transfer pricing documentation parallel to their corporate tax returns anyway, but this documentation did not have to be submitted together with the tax return. The exact content of the data reporting is defined by the transfer pricing decree but the transfer pricing documentation still does not have to be submitted. The data reporting obligation shall apply to tax returns submitted after 31 December 2022.

Expansion of the interquartile range

According to the proposal, the interquartile range is applicable when transfer pricing methods are used in light of public information or data stored in a database that can be checked by the tax authority, or data available from other sources, publicly accessible data or data that can be checked by the tax authority in respect of comparable products, services or businesses. It means that use of the interquartile range will be compulsory or expected more widely than at present (in certain cases a minimum-maximum range was acceptable).

The definition of the interquartile range will remain unchanged, i.e. the median range which contains half of the elements of the sample has to be used. This means that the lowest 25% and the highest 25% of the sample’s element number are excluded, and the extreme values of the remaining median sample are considered to be the extreme values of the arm’s length range.

Transfer pricing adjustment

The bill details the requirements for calculating the tax base adjustment item connected to the transfer price, based on which, as a general rule, any adjustment may only be made towards the median.

Pursuant to the effective transfer pricing rules if the price applied by the related companies does not fall into the arm’s length range, it is enough to adjust the transfer price to the lowest or highest value of the arm’s length range.

Based on the new provisions, if the price applied falls into the arm’s length range, there is no scope for a transfer price adjustment, the consideration should be deemed the arm’s length price. If the consideration applied is outside the arm’s length range, as a general rule, only the median can be taken into account as the arm’s length price, and the transfer pricing adjustment must be made to this point. The exception to this is if the taxpayer verifies that a value within the range other than the median reflects the transaction under review the best, in which case an adjustment should be made to that value instead of the median.

The median is the mid-point of the arm’s length range, where no more than half of the data is lower and no more than half of the data is higher than this, i.e. in the case of a set of numbers with an odd number of elements, it is the value obtained by sorting the numbers in ascending order then taking the number of elements, adding one and dividing the total by two, while in the case of a set with an even number of elements, the median is the arithmetic mean of two values, firstly, the value obtained by sorting the numbers in ascending order then dividing the total number of elements by two, and secondly, sorting the numbers in ascending order then dividing the total number of elements by two and adding one. The provisions defining the amended interquartile rule and the adjustment point are first to be applied when establishing the tax liability for the fiscal year starting in 2022.

Changes in tax inspections 

To prevent the tax authority from making findings contradicting the future resolution determining the arm’s length price, the Act on Rules of Taxation excludes the ordering of tax inspections against taxpayers during the procedure for determining the arm’s length price. The amendment clarifies that this prohibition only applies to tax inspections resulting in an audited period. The legislator also specifies an exception for checks prior to disbursements, in order to detect unauthorised tax claims and refunds and to make informed decisions on the legality of payments.

Default penalty and raising of APA fees 

Based on the new Hungarian transfer pricing rules, the default penalty is to increase significantly. For missing or incomplete transfer pricing documentation, the maximum fine will increase from HUF 2 million to HUF 5 million, and for repeated infringements from HUF 4 million to HUF 10 million.

As a result of the amendment of the Act on Rules of Taxation, the fee for the procedure to establish the arm’s length price (advance pricing arrangement, APA) will also rise. It will be HUF 5 million in unilateral proceedings and HUF 8 million in bilateral or multilateral proceedings. Payment in instalments or deferred payments are not allowed.

APA procedures

Prior to the amendment, a request for determining the arm’s length price could be submitted by a taxpayer who had to prepare transfer pricing documentation. (Taxpayers under majority state control are an exception.) Essentially, “the nature of APA proceedings may de facto limit their accessibility to large taxpayers. The restriction of APAs to large taxpayers may raise questions of equality and uniformity, since taxpayers in identical situations should not be treated differently” (OECD Transfer Pricing Guidelines [2022], paragraph 4.174). Despite the fact that taxpayers are not obliged to prepare transfer pricing documentation, they must modify their tax base to comply with the arm’s length principle. Any taxpayer may have complex related party transactions for which it may be justified to request the determination of an arm’s length price, and it is up to the taxpayer to decide whether this is necessary, there is no justification for limitation in the legislation.

The transfer pricing consultants of WTS Klient Hungary have considerable experience in preparing TP documents and in successfully supporting tax authority inspections, including, among others, industry knowledge on how to manage and support transactions of suppliers in the automobile sector and their tax inspections. As a member of WTS Global’s transfer pricing advisory team, we offer solutions for all kinds of transfer pricing problems at international level. Please do not hesitate to get in touch.

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It is worth mentioning that Ukraine is yet to see the signature of the first APA. The absence of “agiotage” in respect of this instrument was caused largely by the extremely cumbersome procedure, which could barely be offset by corresponding benefits for the taxpayers. This may change due to the new APA procedure.

Legal certainty for large taxpayers

The essence behind an APA is to ensure legal certainty for Ukrainian taxpayers, who fall into the category of “large” with respect to the application of Ukrainian TP rules.

According to the Ukrainian Tax Code, a taxpayer (legal entity or permanent establishment) shall be recognised as “large” if its overall revenue from all types of activity in the 4 most recent tax (reporting) quarters exceeds the equivalent of EUR 50 million; or if the total amount of taxes, fees and payments to Ukraine’s state budget for the same period exceeds the equivalent of EUR 1 million determined based on the average official exchange rate of the National Bank of Ukraine for the same period, provided that the sum of such taxes, fees and charges less customs payments exceeds the equivalent of EUR 500,000.

An APA is concluded for a limited period between the taxpayer and the State Fiscal Service of Ukraine (with the possible participation of fiscal authorities from other states), setting forth special pricing criteria and selecting the most appropriate tools in transfer pricing methodology that will be used to determine if future controlled transactions of the taxpayer are at arm’s length. Such arrangements may be either unilateral (between the taxpayer and the State Fiscal Service of Ukraine), bilateral (between the taxpayer, the State Fiscal Service of Ukraine and the fiscal authority of the country of the non-resident party in the controlled transaction) or multilateral (with the participation of several fiscal authorities in the countries of the non-resident parties of controlled transactions). It is important to note that an effective double taxation treaty with the countries of residence of the parties to the transaction is a prerequisite for engaging the fiscal authorities of the respective countries in an APA procedure.

Steps of new APA procedure in Ukraine

Entering into an APA is a multi-step process and it is usually difficult to predict how long such steps will last, and if an agreement will ultimately be reached. To test the ground the new APA procedure establishes a special preliminary procedure. Namely, before filing a fully-fledged APA request the companies may make a preliminary request, which is a sort of light option designed to check whether it is worth making a fully-fledged application for an APA and preparing the whole set of documents.

The new wording of the procedure also establishes time limits by when the State Fiscal Service of Ukraine has to take action in response to the taxpayer’s application.

The following procedure must be followed in the case of preliminary procedures:

The second option for the taxpayer is to file a fully-fledged APA application without preliminary consultations. In such a case the procedure is as follows:

The new APA procedure at least ensures predictability regarding the timing for the start of the procedure. It would obviously not be excessive to set some general deadlines for the overall procedure too, which is likely to take time.

Documents required

The documents required for filing, alongside the APA, are as follows:

The procedure stipulates that any information, documents or materials received by the State Fiscal Service of Ukaine from the taxpayer during an APA (including any preliminary request discussion) may not be disclosed without the prior consent of the taxpayer and/or such information may not be used as the grounds for a tax or transfer pricing audit. All this information is confidential. It is hard to predict whether the provisions regarding the ban for launching a tax / TP audit will actually work in practice.

Upon agreement with the State Fiscal Service, an APA may be extended to previous tax periods. This is an advantage of the new APA procedure because if the APA is successfully concluded, the large taxpayer could theoretically also mitigate TP risks for previous periods, on condition of compliance with the APA of course.

A taxpayer signing an APA is required to report annually on its implementation, in the form and by the deadlines to be agreed in the APA. One clear advantage of the new APA procedure is that the taxpayer will not be required to prepare separate TP documentation. Previously, even if an APA was concluded, the taxpayer not only had to fill out the report on controlled transactions but also prepare TP documentation like other taxpayers. Now we understand that all the required TP analysis information will be presented in an annual report on APA implementation.

Protection against additional tax liabilities

If a taxpayer complies with the APA, it protects the taxpayer against additional tax liabilities, fines and penalties for breaching Ukrainian TP legislation.

Yet this protection is limited by the possibility of the State Fiscal Service of Ukraine terminating the APA early, with effect from the date the APA entered into force. Such early termination is possible in the following cases:

• the fiscal authority finds that the taxpayer has provided misleading information (if such information was mentioned in documents and materials, filed together with the APA application and/or was in the annual report on APA implementation);

• the taxpayer violates the APA.

To conclude, the new Ukrainian APA procedure seems to be more operational in comparison with previous procedures. Although it is not ideal, it may be considered an option for establishing legal certainty in relation to Ukrainian TP rules.

If you would like to know more about the new APA procedure or other issues in Ukraine, please visit the homepage of WTS Tax Legal Consulting, LLC, the exclusive representative of WTS Global in Ukraine.

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In a previous article on transfer pricing documentation we looked at the most important changes affecting transfer pricing records over the years. We also intimated in the article that the documentation will have to contain even more information in the future to make tax authority inspections more efficient. The amendments are already contained in a draft transfer pricing decree, and we look forward to seeing the final wording. During the amendment to a 2013 decree for example, the draft prescribed very detailed database filtering criteria, but in the final decree, the strict conditions on this filtering were ultimately removed. Let’s take a look at the new aspects in the draft.

What period do the changes to the new transfer pricing decree relate to?

Minister of Finance Decree 22/2009 (X.16) that is currently in force will be replaced by a new transfer pricing decree from 2018. The decree’s provisions must be applied for the first time in relation to documentation for liabilities for fiscal years beginning in 2018. Comments could be submitted on the draft until 5 September; we are now waiting for it to be promulgated and then, thirty days later, for it to enter into force. The provisions of the new transfer pricing decree may be applied when preparing documentation for tax liabilities in the 2017 fiscal year as well, but only if the preparation date of the documentation is not earlier than the date the decree enters into force.

What would the new transfer pricing decree change with regard to the documentation content?

The structure of the new documentation would differ from its current form. The ability to prepare independent records would disappear, and be replaced by records comprising two separate documents: the master file and the local file.

The content of the master file would apply to the group as a whole and comprise detailed information; this would include, but is not limited to, the following:

• presentation of supply chain for the group’s 5 largest products and services, and for any product and service whose turnover exceeds 5 percent of the group’s turnover, listed based on sales revenue (this will not be easy to identify, or even list, for an entity with several divisions carrying out activities round the world – the only potential relief is that the information can also be displayed in a table or in a chart),
• list of significant, intra-group services,
• intangible assets and related agreements concluded with related companies,
• description of intra-group financing,
• presentation of the group’s unilateral arm’s length price agreements (APA) in force and other binding ruling resolutions,
• presentation of significant business reorganisations, acquisitions, transactions related to sales of business divisions.

The main and new parts of the local file are as follows:

• when presenting the taxpayer, we need to show the management structure, an organisational diagram and the names of the individuals who report to the management,
• the company’s main competitors have to be listed (under the current transfer pricing decree, relative competitive positions had to be presented),
• copies of unilateral, bilateral and multilateral APAs and other binding ruling agreements not issued by the NAV have to be included (similar conditions can be found in the current transfer pricing decree, however, binding rulings were not included so far, and ongoing procedures had to be presented too).

What is good in the new decree?

On a positive note, the records and the underlying documentation do not have to be prepared in Hungarian. That said, we still recommend that the documentation be compiled in English, German, French or Hungarian (otherwise the tax authority may ask for the documentation to be translated, possibly resulting in undue additional expense). Similar to the previous rule, the local file must be compiled by the submission date of the tax return (but it does not have to be submitted to the tax authority) and the new transfer pricing decree provides an opportunity for the local file to be considered the record for a period of 12 months from the last day of the taxpayer’s fiscal year (also bearing the parent company’s deadlines in mind), until the master file is available.

What is the situation with database filtering?

For companies selected as comparables, it will suffice in the future to carry out database filtering every three years (the financial data of the companies used for the comparisons should be updated every year), provided that there is no significant change in the business activity over this time. The transfer pricing decree currently in force does not contain any such provision, and updating the financial figures of the compared companies can increase costs. This is because many firms did not deem it important to revise the data of the comparable companies, arguing that the market circumstances had not changed.

Rising administration?

The primary goal of the regulation bringing more administration is to curb the aggressive tax planning and tax evasion efforts of multinational enterprises. Alongside the rules of country-by-country reporting, Hungary has now integrated the rules of master files and local files too. The documentation prepared so far was substantial anyway, but in future, even thicker transfer pricing records will need to be “produced”. For example, it can happen that there is no written contract between the parties, but this does not mean that the record does not have to include all the relevant details. The master files to be presented to Hungarian tax inspectors will contain a lot of information that is not relevant at all from the perspective of a Hungarian inspection, but just one piece of missing data can pave the way for a default penalty.

RELATED ARTICLES:

New transfer pricing documentation decree allows for self-revisions

Mandatory country-by-country reporting – Hungary joins the ranks

Transfer pricing documentation

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