Past practice with transfer pricing documentation
Until now, the practice among legal entities has been:
“I'll deal with it when the tax inspector asks for it.”
Why the “when the tax inspector asks” approach no longer works
This approach no longer works. Not only is it contrary to the Law, it also poses a direct financial risk to the taxpayer.
The Law on Corporate Income Tax clearly states that:
- transfer pricing documentation must exist at the time the tax return is filed,
- transfer pricing documentation must contain analyses and evidence that the transactions are at market terms,
- and now, in addition, transfer pricing documentation must be submitted to the tax authorities, without a request, within nine months of the end of the tax year.
Risks of preparing transfer pricing documentation after the fact
In practice, this means that if you prepare the documentation after the fact:
- you weaken your position before the tax administration,
- you increase the likelihood of a tax base adjustment,
- you open the door to fines and default interest, and possibly to the risk of the tax administration treating it as tax evasion.
What does a transfer pricing study prepared on time bring?
On the other hand, a properly prepared, timely study gives you:
- control over tax risk,
- the possibility of making adjustments before filing the tax return,
- arguments in the event of an audit,
- certainty in your dealings with related parties.
A transfer pricing study is not just “paperwork for the tax inspector”
Most importantly: a transfer pricing study is not just “another piece of paperwork for the tax inspector” – it is a tool that protects you.
For the more “advanced” and “self-aware”, structuring related-party transactions in line with market conditions and principles before the transaction takes place is a further step forward that makes preparing the documentation and the study easier later on.
Not sure whether you are required to have transfer pricing documentation?
VELA Consulting can help you assess your specific situation and prepare the documentation on time.
