Do not overlook the proposed changes in the area of transfer pricing

We recently informed about the changes the Ministry of Finance of the Slovak Republic proposes to introduce in the area of transfer pricing through an amendment to the Income Tax Act. At the mentioned time, the legislative process was still in its initial phase, but in the meantime, comments submitted to the draft law by various institutions and the public as part of the interdepartmental comment procedure were evaluated.

Significance of financial transactions

According to the original proposal of the Slovak Ministry of Finance, all controlled transactions whose value exceeds EUR 10,000 were to be considered significant transactions. As a result of the submitted comments on this proposal, an amendment was made, on the basis of which an exception to this limit should be applied. The exception will be applied to financial transactions, namely loans to be considered significant when their principal amount exceeds EUR 50,000. The purpose of the amendment in question is to reduce the administrative burden on small entrepreneurs in transactions with a low value. From the point of view of multinational companies, the establishment of such a limit is irrelevant, as their transactions in most cases exceed this limit.

Adjustment of the tax base at the median level

Another change related to the procedure of the tax administrator in cases where the prices used by the taxpayer in audited transactions do not correspond to the principle of an independent relationship and the applied prices or the results obtained are not in the interval of independent values.

In such cases, according to the original proposal, the difference by which the taxpayer's tax base should be adjusted was determined according to the median of independent comparable values (regardless of the circumstances regarding the taxpayer's situation, the reliability or equivalence of the values within the range or any hidden shortcomings of the comparability analysis).

We pointed out this discrepancy in the comment procedure. The Directive states that if the prices used by the taxpayer are outside the range of established independent comparable values, the taxpayer should have the opportunity to present relevant arguments that the price used by him is in accordance with the principle of independent relationship. If the taxpayer does not present such arguments, the tax administrator, in accordance with the recommendations of the Directive, can adjust the price by using a point from the range of independent comparable values. According to the Directive, any point from the determined range is in accordance with the principle of independent relationship.

As a result of this discrepancy, the Ministry decided to modify the wording of the proposal so that the taxpayer had the opportunity to prove the suitability of the adjustment to a different point within the range due to specific circumstances. Subsequently, if the taxpayer does not prove it, the tax base is adjusted using the median.

Please note that the above proposals have not yet been approved. We will continue to monitor the development of the situation and will inform about the approval of changes on our website and social networks.

A link to our article on the proposed changes can be found here.

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