Main mistakes concerning hard to value intangibles in Hungary

Hungarian Tax Authorities are increasingly keen to investigate deeply hard to value intangibles during their inspection process.

Over an event recently held by the Hungarian Tax Authority, several common mistakes were in the focus of their speech, which taxpayers should consider as those could lead to major findings.


The contrast of the economic and legal owner could cause the main errors.

Mostly due to tax optimization the owner of the hard to value intangibles is seated in a tax-favourable jurisdiction. Therefore, this company would be the legal owner of the intangible. However, usually in practice, the company which takes part in the invention, development, exploitation (i.e., in the value creation) is different from the legal owner. From an audit perspective, it could lead to a major cause once the profit allocation concerning the intangible would not follow the route of the value creation. In other words, the compensation will not be realized at the company which was involved in the value creation.


Resolving the above-mentioned contradiction OECD introduced the concept of an economic owner. Identifying the economic owner, a six steps approach has been introduced called DEMPE. According to the OECD TPG guideline, the return derived by the exploitation of the intangible (which commonly high) must be allocated to the economic owner.

Elements of the DEMPE approach:

D: Development

E: Enhancement

M: Maintainance

P: Protection

E: Exploitation

In accordance with DEMPE, usually in practice the legal and economic owner are different.

How does this look like in practice?

Performing R&D activities: Egyptian entity

Financier: Irish entity

Leading: German factory

The legal owner: French entity

The Egyptian entity performs its R&D activities on behalf and risk of the German factory. The French legal owner does not contribute to the value creation as such. However, realizes the return derived by the exploitation of the intangible.

The above example indicates that the German factory should be considered as an economic owner of the R&D activities, while the French legal owner should be compensated after its administrative role only (i.e., holding the title). As the legal owner acts solely as a title holding entity, may be advisable to remunerate it on a cost-plus basis. Consequently, the economic owner (i.e., German factory) must realize the remuneration derived by the exploitation of the intangible.


In the light of the above, a change of attitude on the side of both the OECD and Hungarian Tax Authority can be seen. Meaning that during the examination of the economic owner of intangible the value-added roles should be considered.

We hope our summary is useful to you.  If you need help in the field of Accounting and Taxation, feel free to contact BPION consultants!

Read more on our blog! Accounting & Taxation in Hungary


Rafał Nadolny
MD Poland,

Daniela Zsigmond
MD Romania,

Tamás Kovács
MD Hungary,

Related content