When examining transactions between related parties, the Hungarian tax authority (NAV) has developed significant expertise over recent years. It no longer reviews merely the existence of transfer pricing documentation, but also conducts a detailed examination of its content and the transfer pricing methods applied. Taxpayers selected for review are increasingly chosen on the basis of targeted risk analysis, supported by an expanding range of available data sources. At the same time, the regulatory environment continues to evolve.

For businesses, all of this creates increasing compliance and tax risks. Greater emphasis must therefore be placed on advance preparation: in the case of high-value or complex related-party transactions, not only ex post documentation but also the professional substantiation of pricing arrangements in advance has become a key issue. This is where the APA procedure can provide an effective solution.

NAV uses an increasing number of tools to examine transfer pricing

The Hungarian online invoice system, VAT returns, financial statements, international information exchange mechanisms, and the transfer pricing data reporting submitted as part of the corporate income tax return together provide the Hungarian tax authority with a detailed picture of taxpayers’ operations. Based on the tax audit priorities for 2026, NAV applies targeted selection methods based on risk analysis, in which the role of available data is becoming increasingly decisive.

This trend is also clearly visible in audit practice. In recent years, NAV has:

• significantly enhanced its transfer pricing expertise,
• established regional expert teams,
• become capable of conducting substantive reviews of increasingly complex transactions.

The importance of transfer pricing compliance audits is further reinforced by the fact that, while the standard deadline for general compliance audits is 30 days, the duration of transfer pricing compliance audits is 60 days. This longer review period allows the tax authority to conduct a detailed assessment of submitted data, contractual terms, and business rationales.

For this reason, the professional substantiation of the applied transfer pricing methodology plays a particularly important role during transfer pricing audits. Taxpayers must be able to demonstrate that:

• the functional analysis,
• the profitability calculation based on segmented profit and loss statements, and
• the content of the benchmarking analysis

collectively support compliance with the arm’s length principle.

Continuously changing regulatory environment

In addition to audit risks, the changing regulatory environment is also creating new challenges for businesses. Transfer pricing regulations in Hungary have become stricter in several respects in recent years, making the review of previously applied documentation and pricing practices increasingly important.

The most important regulatory changes:

From 2023

• penalties related to transfer pricing documentation increased,
• the rules governing transfer pricing adjustments were amended,
• the application of median-based adjustments gained greater significance.

From 2026

On 23 January 2026, the new transfer pricing decree (NGM Decree No. 45/2025) entered into force. The decree introduces more detailed requirements regarding the content of transfer pricing records and data reporting obligations in several areas:

• increased expectations have been introduced regarding the documentation of functional and risk analyses,
• the application of the benefit test has gained greater importance for certain service transactions,
• transactions involving intangible assets require more detailed substantiation,
• transfer pricing records, corporate income tax return disclosures, and the actual economic substance of transactions must be in full alignment with each other.

All of this means that documentation or pricing practices previously considered acceptable may now create tax risks. This is particularly true for high-value, complex, or difficult-to-benchmark related-party transactions, where businesses should most strongly consider the use of the APA procedure.

What happens when the risk becomes too high?

There are situations where preparing standard transfer pricing documentation alone does not provide sufficient certainty.

Examples include:

• high-value intra-group financing arrangements,
• significant service or licensing transactions,
• specialised transactions where determining an arm’s length price is inherently complex.

In such cases, many businesses ask the same question: will NAV also accept the price we have applied?

The advance pricing agreement, i.e. the APA procedure can provide a solution.

APA procedure: when the rules are clarified in advance

The APA procedure allows taxpayers to request, prior to a potential audit, a determination as to whether the transfer pricing method applied or intended to be applied in a specific future related-party transaction, and the conditions of its application, comply with the arm’s length principle. The purpose of the procedure is therefore not to fully replace transfer pricing documentation or to provide administrative relief from reporting obligations, but rather to provide legal certainty in advance regarding the assessment of pricing arrangements in higher-risk transactions.

The main advantages of the APA procedure may include:

• prior professional and official confirmation of the pricing methodology,
• the elimination of the risk of future tax authority disputes,
• predictability for several years ahead,
• and the exclusion of the risk of significant tax assessments, late payment interest and penalties.

Costs and validity period

The costs of the APA procedure are significant: the official fee and the necessary professional preparation may involve expenditure exceeding HUF 10 million. Nevertheless, the issue should be assessed on a cost-benefit basis.

In the case of a high-value transaction amounting to hundreds of millions or even billions of forints, a subsequent finding by NAV may result in:

• tax assessments,
• late payment interest, and
• substantial penalties.

By contrast, a successfully completed APA procedure can create predictability regarding the pricing of the transaction for years ahead, provided the approved conditions remain unchanged. According to the relevant provisions of the Hungarian Act on Rules of Taxation:

• the validity of the ruling may cover a minimum of three and a maximum of five full tax years,
• and may be extended once by an additional three tax years.

As a result, predictability may extend to as many as eight tax years in total.

In other words, requesting an APA procedure is not justified for every transaction. However, where:

• the transaction value is high,
• uncertainty is significant, or
• audit risk is substantial,

the cost-benefit analysis often supports the use of the APA procedure.

Predictability instead of uncertainty

Managing transfer pricing risks is no longer merely a documentation issue. In the case of high-value or complex related-party transactions in Hungary, it is particularly important that the applied pricing methodology can be successfully defended during a future tax authority audit.The APA procedure is not justified for every transaction, but in the right circumstances it can provide substantial legal certainty. It can help taxpayers clarify in advance the assessment of the pricing methodology applied to a particular related-party transaction and manage transfer pricing risks in a more predictable manner.

TRANSFER PRICING CONSULTING

The key to a successful APA procedure is proper preparation. The Hungarian tax authority expects detailed economic, financial and transfer pricing analyses that professionally substantiate the proposed transfer pricing method. The transfer pricing experts of WTS Klient Hungary provide support among others in assessing whether the APA procedure may be justified for a particular transaction, analysing the transaction value and risk profile, evaluating the applicable transfer pricing method, assessing the expected benefits and costs of the procedure, preparing the required transfer pricing analyses and compiling the APA application.

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