At the end of January 2022, the Organization for Economic Co-operation and Development (OECD) published a new edition of the Transfer Valuation Directive for multinational companies and tax administrations (the “Directive”), which updates the 2017 text. It is the first update after 5 years.

The new edition of the Directive consolidates previous publications and is extended by changes that have been approved and discussed in recent years since the 2017 Directive. Countries may have different approaches to implementing the Directive into local tax legislation. In some countries, domestic legislation refers directly to the Directive so that newer editions are automatically included, while in other countries it is not possible to incorporate the Directive into domestic legislation without prior administrative or other action.

Despite the absent legal binding of the Directive within the framework of Slovak legislation, tax administrators are increasingly using the Directive as the main means of interpretation in applying the rules of transfer pricing. Companies should understand the implications of this development for their activities not only in the home environment but also in other jurisdictions where they operate.

The changes compared to the previous version mainly concern the following areas:

• Revised Guideline on the Application of the 2018 Profit Sharing Method
• Guidance on transfer pricing aspects in relation to financial transactions in 2020
• Guideline for tax administrations on the application of the approach to hard-to-value intangible assets also from 2018

The revised guideline on the application of the profit-sharing method aims to bring closer and clarify the situations in which the use of this method has the most appropriate application, and at the same time points out the ways and procedures of using the method.

The objective of the Financial Transactions Guideline is to provide guidance on assessing whether the terms of related party financial transactions are consistent with the principle of an independent relationship.

Finally, the guidance for tax administrations on applying an approach to intangible assets that is difficult to value leads to a common approach by tax administrations and a common understanding of how to apply individual adjustments and thus mitigate the risk of double taxation.