Preparing for the new TP regulations– Part 4

The new transfer pricing decree of the Ministry for National Economy has entered into force, introducing significant changes to documentation and administrative requirements. The objective of the new regulation is to reduce administrative burdens, curb tax avoidance, and support tax audits. In light of the growing penalty risks observed in recent years, the new rules once again draw attention to the critical importance of transfer pricing. For companies, a comprehensive review of their current documentation practices and alignment with the new requirements has become virtually unavoidable. The provisions of the new decree apply to tax years starting in 2026; however, taxpayers may opt to apply the new rules already for the 2025 tax year.

Follow our updates to stay informed in a timely manner about key obligations and guidance—we help you navigate the changes and prepare for the necessary steps.

In previous installments of our news series, we covered the most important aspects of the benefit test (LINK), highlighted the key role of intra-group communication (LINK), and outlined the conditions for simplified documentation (LINK).

The new Hungarian transfer pricing decree affects nearly all elements of documentation requirements. While the legislator’s aim is partly to reduce administrative burdens, the regulation simultaneously calls for a deeper and more detailed functional analysis and introduces explicit new content requirements with respect to intangible assets. The emphasis is increasingly on ensuring that transfer pricing documentation goes beyond a formal description and convincingly reflects the actual value creation and risk-taking behind the transactions.

In this article, we focus on what these changes mean in practice and how companies should adapt their transfer pricing documentation accordingly.

Enhanced Functional Analysis and Mandatory Characterisation

The new decree explicitly strengthens the expectations regarding functional analysis: it clearly defines which functions and related elements must be presented and separately sets out specific requirements concerning intangible assets. Accordingly, functional analysis must not only describe contractual roles but also provide a detailed assessment of each party’s position in the value chain—specifically, which activities the party performs (e.g. procurement, manufacturing, logistics, marketing, customer relationship management, strategic management), which assets it uses (tangible assets, intangible assets, human resources), and which risks it bears (e.g. financial, market, or operational risks).

Increasing emphasis is placed on ensuring that the description of functions, assets, and risks is consistent with actual profitability. If a company performs only routine, execution-type functions, a lower and more stable level of profit is typically justified. By contrast, for entities making strategic decisions and assuming significant risks, higher returns—or, in some cases, losses—may be considered realistic.

A key novelty is that the characterisation of the parties—where relevant—becomes a mandatory content element. Based on the outcome of the functional analysis, it must be explicitly determined whether a given entity qualifies, for example, as a limited-risk manufacturer, distributor, service provider, or licensor, and this characterisation must be aligned with the chosen transfer pricing method and pricing outcome. Characterisation thus goes beyond being a mere “label”; it forms the starting point for the subsequent benchmarking analysis and profitability testing.

DEMPE Functions in the Spotlight

The new decree explicitly refers to DEMPE functions related to intangible assets and requires their presentation in the local file. Accordingly, the documentation must systematically demonstrate which entities perform the so-called DEMPE functions, namely the development, enhancement, maintenance, protection, and exploitation of intangible assets.

Compared to previous Hungarian documentation practice, this represents a substantial change. While earlier documentation often contained only general references to intangible assets, the new regulation now requires a detailed, entity-level description of DEMPE functions. Companies must therefore reassess whether their intra-group licensing and royalty structures truly reflect where actual value creation takes place.

DEMPE analysis, however, goes beyond merely listing activities—it also involves identifying who actually bears the related risks and exercises control over them. The documentation must demonstrate who assumes the risks associated with intangible assets and who holds the effective decision-making and control rights. In line with OECD guidance on intangibles, the Hungarian regulation thus provides a structured basis for applying the “substance over form” principle. Consequently, intra-group licence arrangements and royalty payments must be evaluated based on their actual economic substance rather than solely on formal legal grounds.

What Should Be Done Now?

The new decree does not merely introduce administrative changes; it fundamentally reshapes the role of functional and DEMPE analysis in transfer pricing. Companies are advised to already review their group structures, the scope of related-party transactions, functional descriptions, and the functions associated with intangible assets, as well as to assess the extent to which their existing transfer pricing policies reflect DEMPE outcomes. Those who begin preparations in a timely manner and incorporate functional and DEMPE analyses that genuinely reflect economic reality into their documentation, in line with the spirit of the regulation, can significantly reduce the risk of transfer pricing adjustments and non-compliance penalties.