If a taxpayer fails to comply with the transfer pricing documentation requirements it is subject to a default fine for each 'qualifying agreement'. This fine has been increased to 2 million HUF from 2004 onwards that can be levied per agreements /transactions per transfer pricing audit. If the taxpayer cannot provide the required documentation when the Tax Authority requests it, or can only provide documentation that does not meet the statutory requirements, then the Authority can determine the appropriate pricing levels and the burden of proof shifts onto the taxpayer. Please note that in cases where documentation is lacking, the tax administration may allow additional time for it to be provided, but will charge additional penalties for each new deadline that is exceeded. In such cases, when the need for pricing adjustments occurs, the Authority concerned may take the timely provision of appropriate documentation as an indication of the taxpayer's good faith, which may mitigate the risk of penalties.
Transfer pricing adjustments (assuming they are in favour of the tax authority) might increase the tax liability of the taxpayer. A 50% tax penalty can be charged on the additional tax payable, if any. Late payment interest equal to twice the base rate of the National Bank of Hungary can also be charged. The risk of double taxation arises when a "corresponding adjustment" is not made by the other tax jurisdiction involved. These risks may arise for any qualifying agreement in any of the years open to scrutiny by the tax authority under the Hungarian statue of limitations.
Besides the preparation of proper transfer pricing documentation registration of related parties at the Hungarian Tax Authority is also important. If the taxpayer fails to register the corporate details of its affiliated companies within 15 days after entering into a new agreement with its affiliated companies a default fine of HUF 500.000 can be levied.
