Upcoming new requirements for transfer pricing documentation

The Ministry of Finance has drafted amendments to the Law "On Taxes and Fees" which provides new requirements for transfer pricing documentation. It is expected that changes to the law will take effect as of 1 January 2018 or during 2018.

As per the extensive draft law, a taxpayer must prepare global and local transfer pricing documentation for transactions with related parties and submit it simultaneously with the corporate income tax return declaration if the amount of the transaction or its category exceeds EUR 1 000 000 in the accounting year or the transaction or the amount of the category exceeds EUR 500 000 in the accounting year and if the counterparty is required to prepare a global documentation in line with the laws and regulations of its state of residence.

If the amount of a controlled transaction or it category exceeds EUR 250 000 per year but not exceeding EUR 1 000 000 per year, the transfer pricing documentation must be submitted to the taxpayer upon request of the tax administration.

The draft law specifies type of information which should be provided in the global and local documentation, as well as the general requirements:

1. transfer pricing documentation has to be prepared on the basis of information which is reasonably available during the accounting year or while making corrections to the corporate tax return declaration until the expiry of correction term specified in regulatory provisions
   
2. local documentation is prepared no later than the day when controlled transaction was performed in the accounting year and the taxpayer is obliged to submit a corporate income tax return declaration
3. global documentation is prepared no later than the day when the controlled transaction is carried out in the accounting year and the taxable person is obliged to submit a corporate income tax return declaration or on the date when the international group of companies related to the taxpayer is obliged to submit consolidated annual report
   
4. transfer pricing documentation has to be reviewed annually to ensure performance of functional and economic analysis and update of transfer pricing methodology.
   
5. transfer pricing documentation is available electronically allowing the search function in the text.
   

In addition, the taxpayers should note that the draft law also provides penalties for failure to submit transfer pricing documentation i.e., the tax administration will determine the market price (value) of the transaction on the basis of the information available and apply a penalty of up to 2% of the amount of the controlled transaction for failure to submit documentation.

We recommend to keep track on the progress of the draft law to the taxpayers who deal with related partie, in order to prepare timely for the new requirements.