Failure to comply with Hungarian transfer pricing regulations may have severe financial consequences.
Transfer pricing risks primarily include the potential of a default penalty imposed in case of noncompliance with TP regulations. The penalty can be up to HUF 2,000,000 (approximately USD 10,000) per transaction per year significantly increasing for repeated non-compliance.
In addition, transfer pricing adjustments (assuming they are in favour of the tax authority) cannot only increase the tax liability of the taxpayer but also result in a tax penalty of 50% of any additional tax payable plus interest on late payment of tax at twice the base rate of the National Bank of Hungary.
There is also the risk of double taxation when a ‘corresponding adjustment’ is not accepted in the other tax jurisdiction involved.
These risks exist for qualifying agreements in any of the years open to scrutiny by the tax authority under the Hungarian statute of limitations.
Finally, taxpayers have a reporting obligation in relation to their related parties. Should the taxpayer fail to meet this obligation, a default penalty of up to HUF 500,000 may be imposed.
PwC’s Transfer Pricing team can help you to find solutions for your transfer pricing issues.