Transfer Pricing

Transfer prices and documentation

Transfer price is the price (value) of goods or services applied in a controlled transaction (a transaction between two persons who are related parties), while transfer pricing documentation is a set of data that, in accordance with the procedure established by regulatory acts, substantiates the compliance of the specific transaction price with the market price.

The requirement to comply with the market value in transactions with related parties derives from the Corporate Income Tax Law, which means that when selling goods to a related domestic company or conducting other types of transactions with related parties, a price corresponding to the market value must be applied to the transaction. If the value of mutual transactions does not exceed the limit values specified in the Law "On Taxes and Fees", i.e. the value of the controlled transactions does not exceed 250,000 euros, the taxpayer may not be obliged to prepare the transfer pricing documentation specified in the Law "On Taxes and Fees". However, the taxpayer will still have to be able to justify the conformity of the applied price with the market price.

When preparation of transfer pricing documentation is mandatory?

A certain type of transfer pricing documentation must be prepared by a taxpayer who

• conducts transactions with a related foreign company, related natural persons, a low-tax territory (offshore) company, and a related person - a resident, AND 
• if the transaction, commercial or financial relationship, according to the functions performed, admitted, controlled, or managed risks or used assets, are economically connected (occurs within the same supply chain) with another related foreign company or persons of this offshore.

Depending on the size of the transactions (threshold values of transaction values), the taxpayer is obliged to prepare local and/or global documentation.

Transaction thresholds

The taxpayer is obliged to submit global documentation to the State Revenue Service (SRS) within 12 months after the end of the relevant financial year if at least one of the following conditions is met:

• the number of controlled transactions in the relevant reporting year exceeds EUR 15 million,
• the turnover in the relevant financial year exceeds EUR 50 million and the number of controlled transactions in the relevant reporting year exceeds EUR 5 million,

Local documentation must be prepared if the number of controlled transactions in the relevant reporting year exceeds 5 million euros.

There is also obligation to prepare global documentation within 12 months after the end of the relevant financial year and, if requested by SRS, to submit global documentation within a month after receiving the SRS request is necessary, if:

• the taxpayer's net turnover in the relevant financial year does not exceed EUR 50 million and the number of controlled transactions in the relevant accounting year does not exceed EUR 15 million, but exceeds EUR 5 million,
• local documentation, if the number of controlled transactions exceeds EUR 250,000 in the relevant reporting year, but does not exceed EUR 5 million.

Penalties for violations

In accordance with the Law "On Taxes and Fees", the State Revenue Service (SRS) has the right to impose a fine on the taxpayer up to 1% of the amount of the controlled transactions, for which they are obliged to prepare transfer pricing documentation, but not more than 100 000 euros. The SRS can apply this penalty for transfer pricing documentation not submitted on time or in cases where the taxpayer has significantly violated the requirements for the preparation of transfer pricing documentation provided for in legislation.

Is it possible to extend the deadline for submitting documentation?

There are cases when taxpayers, based on objective arguments, ask the SRS to extend the deadline for submitting transfer pricing documentation. Considering that the documentation of the specific taxpayers must be submitted within 12 months after the end of the relevant accounting year, the SRS usually rejects these requests, arguing that the legislation does not provide the SRS with the right to extend the deadline. 

The time for taxpayers’ bailouts is over

During the pandemic, SRS did not actively audit the transfer pricing documentation, but now the "saving" regime has already ended. Therefore, taxpayers are advised to start the preparation of transfer pricing documentation in time and submit it within the deadlines set by the SRS law, rather than relying on the fact that the SRS will allow it to be submitted later.

For more information read our articles: Transfer pricing documentation - is it ready for submission to the SRS? and In the case of the transactions with the Russian Federation, transfer price documentation must be prepared.

Useful to check:

• Tax advisory services
• Binding ruling of State revenue service