The benefit test in practice

What is the benefit test?

Within corporate groups, a central company often provides services such as IT, finance, HR or management support to several group members. When accounting for the associated charges, however, having a contract and an invoice is not sufficient: it must also be demonstrated that a service providing a genuine benefit to the recipient company was delivered, highlights Endre Petrás, transfer pricing expert at Niveus.

The benefit test examines this benefit. It assesses the economic or commercial value that the service provides to the company concerned and whether an independent enterprise in comparable circumstances would pay for it or perform the activity itself. The benefit may take the form of cost savings, more efficient operations, access to specialist expertise or reduced operational risks. It is not always necessary to demonstrate directly quantifiable savings, but the business rationale for the service must be supported by specific details.

The assessment must also establish whether the service was actually delivered, whether it unnecessarily duplicates tasks already performed locally, and whether the company has been charged for activities serving exclusively the shareholder’s interests.

The benefit test therefore primarily addresses whether paying a service fee is justified. Whether the amount charged is consistent with the arm’s length principle is a separate question.

What do international and Hungarian rules say?

Chapter VII of the OECD Transfer Pricing Guidelines distinguishes between two questions: whether a service has been provided and what its arm’s length remuneration should be. Paragraph 7.6 requires an assessment of whether the activity provides the recipient with economic or commercial value to enhance or maintain its business position. The decision that an independent enterprise would be expected to make serves as a reference point for this assessment.

A benefit does not necessarily mean a direct increase in revenue. A service may also be beneficial if it reduces operational risk, ensures regulatory compliance or provides expertise that is not available locally. The key is to identify the benefit specifically and link it to the service received.

In Hungary, NGM Decree No. 45/2025 (XII. 23.) expressly requires recipients of financial and non-financial services to present a benefit test as part of the local file. As a general rule, the new decree first applies to tax years beginning in 2026.

Why does this matter beyond transfer pricing?

Evidence of service delivery and its business purpose is also important for the tax deductibility of the service fee. Independently of a transfer pricing review, the tax authority may examine whether the recognised expense relates to the company’s business and income-generating activities. If it does not, an increase in the corporate income tax base may be required. An arm’s length charge therefore does not, in itself, ensure that the expense is deductible.

Documentation is also significant for input VAT deduction. As a general rule, input VAT on a service is deductible to the extent that the service is used for activities giving rise to a right of deduction, provided that the other statutory conditions are met. Documents collected for the benefit test may also help demonstrate actual service delivery and use. However, the conditions for input VAT deduction must be assessed separately: shortcomings in the benefit test do not, in themselves, automatically result in the loss of the right to deduct VAT.

Shareholder activities and other disqualifying factors

Particular attention should be paid to shareholder activities, meaning activities performed solely in the capacity of a shareholder. Examples may include organising the parent company’s general meeting, preparing its consolidated financial statements or managing its own investor relations. As a general rule, the costs of these activities remain with the shareholder.

Operational support provided by the parent company must be distinguished according to its substance. If the same central team performs both shareholder activities and tasks supporting local operations, those activities and their costs must be separated.

Potential duplication must also be examined. If the local company already performs the same task through its own employees or an external provider, the additional value of the central activity must be established. However, work within the same professional field does not necessarily mean that the tasks are identical. Temporary duplication during a reorganisation or a justified second professional opinion may also be acceptable for deductibility purposes, provided that adequate justification is available.

Finally, a more favourable market perception arising solely from group membership does not, in itself, constitute a service for which a fee may be charged.

How should the benefit test be carried out?

As a first step, broad service categories should be broken down into specific tasks. “Management support”, for example, may include financial planning, legal advice or procurement support. The need for these services, their local benefits and the supporting evidence may differ, so it is advisable to assess them separately.

For each service, the following questions should be considered and the relevant information and documents collected:

• What did the company receive? What specific work was performed, who was involved and what was the outcome? To demonstrate this, it is advisable to collect contracts setting out the scope and terms of the service, together with documents evidencing delivery, such as reports, deliverables, correspondence or support tickets. The service period, frequency and responsible local contact should also be recorded, along with the method used to verify delivery.

• Why was the service needed, and what benefit did it provide? What local task, resource shortage or business problem did the service address? How did it contribute to the company’s operations, and how did the company use its results? The explanation should be based on specific local circumstances and actual use. It is also advisable to address whether the company can influence the scope of the service or opt out of receiving it. The assessment must also consider the benefit that could reasonably have been expected when the service was obtained.

• What would have happened without the service? Would the company have needed to engage an external provider, employ its own staff or find another way to perform the task? The available alternatives and their expected resource requirements should be presented.

• Is there any overlap or disqualifying factor? Are similar tasks performed locally or by an external provider? If so, how does the support received within the group differ, and what justifies any overlap? It is also necessary to examine whether the activity is a shareholder activity, whether the benefit arises solely from group membership, or whether a charge has been made for a service that was not actually provided. In doing so, it should be recognised that a justified arrangement under which services are available when needed may itself constitute a service.

• How was the fee determined? As part of the service assessment, it is advisable to present the pricing, invoicing and payment terms, the cost base and the mark-up applied. Where costs are allocated, the companies concerned, allocation keys and calculations should also be presented. The amounts charged must also be reconciled to the accounting records.

The basis for allocating costs must have a reasonable relationship with usage or the expected benefit. Headcount, for example, may be appropriate for certain HR services, while the number of users may be suitable for some IT services. In every case, it is necessary to explain why the selected key appropriately reflects the allocation of costs among the recipient companies.

For central IT support, for example, the local need may be to keep business-critical systems running continuously, while the benefit may take the form of rapid troubleshooting and operational reliability. The assessment becomes convincing when these findings are linked to the company’s specific operations.

Alongside finance, the business functions that actually receive the services should also be involved in preparing the benefit test. The person responsible for IT, HR or legal matters can explain in substance what support was received, how it was used and what benefit it provided.

Evidence should be collected in a shared document repository throughout the year, allowing the year-end assessment to build on organising and evaluating existing materials. Before reusing the previous year’s assessment, it is necessary to check whether the service, local need, division of responsibilities or remuneration has changed.

What documents can substantiate service delivery?

The contract sets out the tasks undertaken, while the invoice shows the consideration charged. In addition, documents are needed to establish what work was actually performed and how it was used locally.

Depending on the nature of the service, the following evidence may be particularly useful:

• Management and advisory services: reports, analyses, materials supporting decision-making, professional correspondence and meeting notes.

• IT support: support tickets, resolution records, operational reports, and access and usage logs.

• HR and training: recruitment documents, training materials, attendance records and correspondence demonstrating support provided to local employees.

• Legal and financial support: professional opinions, reviewed contracts, financial plans, and records of consultations and checks.

• Time-based charging: records identifying the task, the company concerned and the time spent, together with the related deliverables.

In addition to retaining a document, its use should also be explained. For a report, for example, it is advisable to record which local decision it supported. For training, the explanation should show how it related to the participants’ work.

Where possible, the evidence should identify who performed the work, when, for which company and what the task involved. A generic confirmation of service delivery provides limited information; stronger substantiation comes from references to specific tasks and identifiable documents.