If the transfer price is not the market value, the basis for determining
income tax should be the market value – the difference between the transfer
price and the market value is subject of taxation on the basis of ITA §§ 14, 50
or 53, if it is not a fringe benefit (§ 48).
In Estonia, the tax authorities have issued the transfer pricing guidelines
which defines a common goal in transactions between associated persons -
maximizing profits. To achieve that goal the profits will be moved through
various tax jurisdiction or forms of business, which ultimately ensures a lower
tax burden. As a rule, profits will be moved through the agreements that are
not economically justified, and that non-associated persons would not transact
with each other.
Tax liability optimization with transaction between associated persons puts
entrepreneurs in an unequal position and fails state tax revenue.
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