Hungary Trust Tax Audit: Mandatory NAV Audits Start in 2026

Hungary has introduced a new mandatory tax audit regime for trusts, fiduciary asset management arrangements (bizalmi vagyonkezelés, or “BVK”) and certain private foundations.

Under Section 114 of the Hungarian Personal Income Tax Act, the Hungarian Tax Authority (NAV) is required to audit certain existing structures, with the first Hungary trust tax audits expected to start in mid-November 2026.

The new regime represents a significant change in the tax authority’s approach to Hungarian fiduciary asset management. Importantly, these are not merely risk-based audits targeting selected taxpayers. For structures falling within the scope of the new legislation, NAV is required by law to conduct an examination.

Who is affected by the mandatory Hungary trust tax audit?

The first wave of mandatory NAV audits concerns assets managed by fiduciary asset managers registered before 12 September 2023, as well as private foundations falling within the scope of the Hungarian Personal Income Tax Act (Hungary trust tax audit).

This date is particularly important because it precedes the major changes introduced in 2023 to the taxation of fiduciary asset management structures.

Under Section 114(1) of the Personal Income Tax Act, NAV must examine these structures. In other words, the audit is not dependent on NAV first identifying an individual tax risk.

NAV has indicated that more than a thousand fiduciary asset management arrangements and private foundations may be affected by the first phase of the reviews.

What will NAV examine during a Hungarian trust tax audit?

The legislation is unusually specific about the matters NAV is expected to investigate.

Section 114(2) expressly identifies a number of circumstances that may form part of the examination. These include:

• the circumstances surrounding the establishment and funding of the trust;
• how the relationship with the advisers and the lawyer countersigning the documentation was initiated;
• the personal and economic circumstances surrounding the establishment of the structure;
• drafts and other written documents prepared in connection with the structure;
• the content of agreements entered into with advisers and lawyers;
• whether advisory or engagement documents contained provisions relating to anticipated tax advantages;
• the relationship between the trustee, settlor and beneficiaries;
• the period between the contribution of the assets and the first distribution treated as a capital distribution; and
• the reason or commercial circumstances giving rise to the distribution.

NAV has also indicated that the focus will be on whether the fiduciary asset management arrangement had genuine economic substance and a bona fide purpose, or whether it was created primarily to obtain a tax advantage (Hungary trust tax audit).

This means that a NAV trust audit is unlikely to be limited to tax returns and accounting records. The history and actual operation of the structure may become just as important as its formal legal documentation.

Substance over form will be a key issue

One of the central questions in a Hungary trust tax audit is therefore likely to be whether the structure operated in practice in accordance with the purpose reflected in its documentation.

NAV may examine:

• the circumstances of the original asset contribution;
• the purpose for establishing the structure;
• contemporaneous documentation;
• the actual role performed by the trustee;
• movements of cash and other assets; and
• whether the objectives stated in the trust documentation are consistent with the way the structure actually operated.

A trust may be legally valid and properly documented while still raising tax questions if, in practice, the settlor continued to exercise substantially the same control over the assets and the structure was followed shortly by a tax-advantaged distribution.

Conversely, structures established for genuine succession planning, long-term family wealth management, asset protection or similar commercial and family purposes should generally be in a stronger position if these purposes and the actual operation of the structure can be demonstrated with contemporaneous evidence (Hungary trust tax audit).

The timing of trust distributions may become particularly important

One of the factors expressly identified by the legislation is the period between the original contribution of assets and the first distribution treated as a distribution of capital.

NAV may therefore pay particular attention to arrangements involving a sequence such as:

Asset contribution → revaluation → sale → distribution of proceeds

This may be particularly relevant where these steps occurred within a relatively short period or closely followed the expiry of a relevant statutory holding period.

The existence of such a sequence does not in itself establish that the arrangement was abusive. However, it makes the underlying commercial or family rationale, the chronology of decisions and the supporting documentation considerably more important (Hungary trust tax audit).

NAV may examine documents predating the trust

One particularly important feature of the new Hungarian trust tax audit rules is their explicit reference to communications and documentation connected with the creation of the structure.

The audit may therefore extend well beyond the trust deed itself.

Depending on the circumstances, relevant documents may include:

• engagement letters;
• tax and legal advice;
• valuation reports;
• correspondence surrounding the establishment of the structure;
• draft trust documents;
• documentation explaining the objectives of the arrangement;
• trustee resolutions;
• distribution decisions; and
• records explaining subsequent changes to the structure.

For taxpayers, this means that a retrospective reconstruction of the commercial rationale may be less persuasive than contemporaneous evidence showing why the arrangement was originally established (Hungary trust tax audit).

What if the Hungarian trust has already been terminated?

Termination of the fiduciary asset management structure does not necessarily eliminate the audit risk.

For a terminated managed estate or private foundation, Section 114 specifically provides that NAV may conduct the audit against the settlor, founder or contributor, as applicable (Hungary trust tax audit).

Former structures should therefore not assume that winding up the arrangement removes historical Hungarian tax exposure.

Mandatory trust audits will become even broader from 2028

The legislation also creates a second, considerably broader phase of the audit regime.

From 1 January 2028, NAV will be required to conduct audits in respect of all assets managed under fiduciary asset management arrangements and private foundations, within the applicable statute of limitations for the assessment of tax.

Accordingly, the 2026 program should not be viewed simply as a one-off campaign against older structures. It marks the beginning of a substantially more systematic tax-control framework for Hungarian fiduciary asset management.

How should you prepare for a NAV trust audit?

For structures established before 12 September 2023, we recommend carrying out a pre-audit tax review before NAV opens the examination.

The review should reconstruct the complete history of the arrangement and address at least the following areas:

1. Purpose of the structure: why was the trust established and what non-tax objectives did it serve?

2. Asset contribution and valuation: what assets were contributed, at what value and on the basis of what valuation?

3. Pre-establishment documentation: do the original correspondence, professional advice and engagement documents support the stated objectives?

4. Trustee independence and activity: can the actual decision-making and asset management performed by the trustee be demonstrated?

5. Asset transactions: were contributed assets subsequently sold, reorganized or otherwise transformed?

6. Distributions: when were distributions made, how were they classified and how was their tax treatment determined?

7. Consistency between documentation and reality: did the structure operate in the manner contemplated by the original trust documentation?

8. Tax and accounting records: are valuations, acquisition costs, capital accounts, reserves and distributions properly documented and reconcilable?

The objective of such a review should not simply be to determine whether previous tax returns were mathematically correct. It should establish whether the entire factual history of the structure can be explained, documented and defended consistently if NAV examines it several years later (Hungary trust tax audit).

A successful NAV audit may also provide greater certainty

NAV itself has emphasized that the new audit regime should not necessarily be viewed negatively. For correctly established and properly operated structures, the audit may provide greater certainty regarding the defensibility of their operation and tax treatment (Hungary trust tax audit).

The practical dividing line is likely to be the available evidence.

Where a structure had genuine succession planning, family wealth management, asset protection or other non-tax objectives, and these objectives are supported by contemporaneous documentation and consistent conduct, the taxpayer should be in a considerably stronger position.

Where documentation is incomplete, the trustee performed only a nominal role, or the establishment, disposal and distribution steps closely followed each other without an identifiable non-tax rationale, the tax audit risk may be significantly higher.

Given the mandatory nature of the new audit regime, structures established before 12 September 2023 should consider reviewing their position before receiving the formal NAV audit notification, rather than addressing documentation gaps and historical inconsistencies for the first time during the audit procedure.

This article provides general information only and does not constitute tax or legal advice. The tax treatment and audit risk of fiduciary asset management structures depend on their individual circumstances.