In the context of the general efforts of individual states, the Organization for Economic Co-operation and Development (OECD) as well as the European Union and the Slovak Republic to systematically prevent the transfer of profits from one country to another country or from a profitable company to a loss-making company, the current transfer pricing regulation is the most important regulatory tool to suppress such efforts of taxpayers. One of the formal outputs of this regulation is transfer pricing documentation. Its role is to specifically describe transactions between related parties and to show in a simplified way that these transactions and the prices they include are set as if these transactions were carried out by unrelated parties.
Nowadays transfer pricing is a regulatory hit. Over the last years, the financial authorities have invested several capacities to set up control teams whose task is to focus on transfer prices and therefore on transfer pricing documentation as well.
The State’s Attempt
The attempt to make transactions happen in line with the market principle is in this case a legitimate requirement of the state, as tax evasion often occurs this way. However, the obligation to have the transfer pricing documentation completed does not only concern cases in which there is, or may be, a potential transfer of profits. This obligation is general and covers any controlled transaction (related party transactions).
Simple Transfer Documentation
Although transfer documentation may act as a deterring factor, in fact, for simple and low-risk transactions, a simple transfer documentation is sufficient. Our ambition is primarily to make an effective standard for entrepreneurs so that they do not have to unnecessarily pay attention and invest resources into areas that do not produce revenue. Our goal is to understand the client’s business and to adapt the transfer pricing documentation accordingly.
However, in situations in which profits are transferred, especially abroad, the entrepreneur should be more cautious and pay more attention to transfer pricing. The amendment to the Income Tax Act introduced double penalties, if the profits were intentionally transferred in breach of transfer pricing regulation.
We know three types of transfer documentation:
- Shortened transfer pricing documentation;
- Basic transfer pricing documentation;
- Full transfer pricing documentation.
What do we offer?
- Analysis of taxpayer transactions in relation to the risk of the absence of the market principle;
- Functional analysis and selection of a suitable transfer pricing method;
- Preparing documents to support profit distribution;
- Preparation of the transfer pricing documentation;
- Assistance in obtaining a tax administrator’s confirmation of using the transfer pricing documentation method and in interviews conducted by the tax administrator during tax controls;
- Optimizing intra-company transactions to create models that are effective from the perspective of tax, law and costs.