Transfer prices are prices formed in transactions between related parties.
Related parties
Related parties are two companies (or a natural and a legal person) that carry out transactions with each other at transfer prices — the taxpayer and the person related to them.
In accordance with the Law, the relatedness of persons for tax purposes is determined in business relations with both legal and natural persons. They are considered related only if:
- There is a link in the business relationship with the taxpayer
- Controlled transactions are carried out
Why they matter
Transactions between related persons are an important segment in the operations of legal entities — especially in multinational groups. Such transactions are increasingly becoming the subject of attention of the Tax Authority.
Appropriately setting the prices at which they are performed is key to reducing the risks of operations within the group.
The arm’s length principle
A taxpayer that participates in a transaction with a related party must determine taxable profit in accordance with the arm’s length principle.
The application of the principle is based on comparing the conditions of controlled transactions with the conditions of uncontrolled transactions (between unrelated parties).
The value of transactions between related parties should not deviate from market value. If it does — it is a transfer price.
TP documentation — who must prepare it
TP documentation must be prepared by entities that carry out transactions with related parties (intercompany transactions) during the year.
TP documentation must be prepared annually in case there were transactions with related parties during the business year in question.
Who are large taxpayers
According to the Accounting Act, large taxpayers are legal entities that meet at least two of three criteria:
- Average number of employees in the business year greater than 250
- Total annual revenue greater than EUR 40,000,000
- Total assets greater than EUR 20,000,000
Deadlines for TP documentation and disclosure
For the period from the 2022 financial year — in addition to the corporate income tax return:
- Large taxpayers: TP documentation is submitted within 3 months after the end of the business year
- Other taxpayers: TP documentation must be prepared by the deadline for the corporate income tax return and submitted within 45 days upon request of the tax authorities
Note: Until 2027, deadlines for TP documentation are extended until 30 June.
TP documentation must be submitted in the local language.
Disclosure in the tax return
Taxpayers are required to, in the annual corporate income tax return:
- Present income and expenses on the basis of transactions with related parties
- Disclose tax adjustments based on TP analysis
Penalties for non-compliance
The range of penalties is between EUR 1,000 and EUR 20,000:
- If a large taxpayer fails to submit TP documentation within the prescribed deadline
- If another taxpayer fails to obtain and submit TP documentation upon the official written request of the tax authorities within 45 days
INTERIM — Finance Plus recommendation
We recommend that you contact us for an annual preliminary report (INTERIM) — so you can be informed in time about the amount entered in the tax return, as this affects corporate income tax.
The ideal time to apply for preparation of an INTERIM report is in September.
Contact Finance Plus for the preparation of TP documentation and INTERIM report.
