NGM Decree No. 45/2025 (XII. 23.), applicable from the 2026 tax year, requires businesses to carry out a more detailed functional analysis than before. This is particularly important where an intangible is the subject of a controlled transaction or constitutes a significant, unique and valuable asset used in the activity under review. In such cases, it is not sufficient merely to identify which group member legally owns a trademark, technology or software: it is also necessary to examine how individual group members actually contribute to creating and maintaining its value.

The new decree explicitly reflects this approach: where relevant, the functional analysis in the local file must describe the creation, development, maintenance, protection and exploitation of the intangible. The Ministry of Finance’s technical guidance on the new decree also emphasises that the functional analysis must address the DEMPE functions and risks associated with intangibles, explained Balázs Kovács, Senior Transfer Pricing Consultant at Niveus.

What does DEMPE mean?

DEMPE is an acronym for five value-creating functions associated with intangibles: Development, Enhancement, Maintenance, Protection and Exploitation.

The fundamental purpose of DEMPE analysis is to examine how individual members of a corporate group contribute to the income generated by an intangible. For transfer pricing purposes, legal ownership alone does not necessarily justify the legal owner retaining all income associated with the intangible. The functions actually performed, assets used, and risks assumed and controlled must also be taken into account.

For Development, for example, it is appropriate to examine which company carries out the research and development activities, where the employees involved in development work, who determines the direction and budget of the development programme, and who makes significant decisions on whether to continue or discontinue the project.

Enhancement may include activities that increase the value of an existing intangible. For a brand, this could involve developing and implementing a significant marketing strategy, while for technology or software, it could involve enhancing functionality or creating new applications.

Maintenance examines who ensures that the intangible retains its value and remains usable. For software, this may include regular updates and bug fixes; for a brand name, it may encompass ongoing activities that maintain the brand’s market position.

Protection involves examining, among other things, who arranges the registration and renewal of patents, trademarks or other rights, who monitors potential infringements, and which company decides whether to initiate legal proceedings and bears the associated costs.

Finally, Exploitation requires an assessment of how the intangible is used to generate economic benefits. This may include using technology in the company’s own manufacturing operations, using a trademark when selling products, or licensing the intangible to a third party or a related party.

More than who performs the tasks

DEMPE analysis goes beyond listing which company’s employees perform particular activities. Actual decision-making, control over the relevant risks, human resources and funding capacity are all significant. It is therefore advisable to identify the key individuals and decision-making roles that actually determine the development, commercial direction and risk profile of the intangible: in other words, where strategic decisions are made in practice.

Suppose that employees of a Hungarian company develop a new technology, while a foreign related party is its legal owner. Examining the number of developers or R&D expenditure alone is not sufficient. The assessment must consider, among other things, who sets the development strategy, who approves the budget, who decides to discontinue unsuccessful projects, who controls the R&D risk, and who funds the activities. Different remuneration may be appropriate for a routine development service provider working to predefined specifications than for a company that also makes the strategic decisions determining the technology’s value.

Where several group members make unique and valuable contributions to value creation for which reliable comparables are difficult to find, DEMPE analysis may also influence the choice of transfer pricing method. In such circumstances, particularly where operations are highly integrated or economically significant risks are jointly controlled, applying the profit split method may be appropriate.

What does the new decree require?

Under NGM Decree No. 45/2025 (XII. 23.), the local file must describe the economically relevant characteristics of the controlled transaction in detail. The decree specifically identifies numerous activities among the functions to be examined. It also states that where an intangible is the subject of the controlled transaction or constitutes a significant, unique and valuable asset used in the activity, its creation, development, maintenance, protection and exploitation must also be examined. The assets used, human resources and risks assumed must also be described, together with how they relate to the group’s wider value creation.

For a transaction where DEMPE is relevant, the documentation must therefore clearly establish which company performs each function, where the necessary expertise and actual decision-making are located, who bears and controls the associated risks, and how these factors are reflected in the transfer price applied. A divergence between the contractual structure and actual operations may pose a particular risk.

Intangibles rather than intangible assets recognised for accounting purposes

The new decree has also introduced a change in terminology, bringing the definition of an “intangible” into greater focus in the transfer pricing rules. Under the decree, an intangible is an asset that is neither a physical nor a financial asset, is capable of being owned or controlled for use in commercial activities, and whose use or transfer would be compensated in a comparable transaction between independent enterprises.

This definition is not identical to the scope of intangible assets for accounting purposes. An item of value may therefore qualify as an intangible for transfer pricing purposes even if it is not recognised as an intangible asset on the company’s balance sheet. Examples may include unregistered know-how, trade secrets, internally developed technological expertise or other economically valuable knowledge capable of being controlled. DEMPE analysis must therefore go beyond the general ledger or asset register: it must also identify the factors that create value in the company’s actual operations.

Contracts and legal ownership alone are not enough

In a subsequent tax audit, the question may therefore be not only who owns the patent, trademark or technology, but also who created and maintains its value. In addition to contracts, relevant supporting evidence may include R&D documentation, project plans, budgets, management decisions, job descriptions and employment contracts, marketing materials, licences, documents relating to the protection of intellectual property rights, and other internal records demonstrating the actual decision-making process.

DEMPE analysis is therefore more than an additional documentation requirement: it serves to assess whether the allocation of income from intangibles within a group is consistent with actual value creation. In light of the new decree, a timely review is particularly advisable for groups where research and development, brand building, technology development or the creation of other valuable know-how and its legal ownership are spread across several group members.