Amendments to the Transfer Pricing Regulation
An updated transfer pricing regulation, which amended and specified the requirements for transfer pricing documentation, entered into force on 1 January 2022. The regulation was revised to harmonise it with the general principles of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations, published in 2017.
The new regulation stipulates that transfer pricing documentation must include three components: (i) a master file that contains the data on a consolidated group; (ii) a taxpayer’s file on an Estonian company; and (iii) a country-by-country report that corresponds to the requirements of the Tax Information Exchange Act. The new regulation specifies the information that must be included in the master file and in the taxpayer’s file. For example, the master file must contain the annual report of the consolidated group as well as the description of: (i) the supply chain of its largest products and services; (ii) the capacity to provide the above services; and (iii) its financing arrangements (incl. significant agreements with unrelated parties). The requirements on the information regarding the consolidated group’s intangible assets were also updated extensively.
The taxpayer’s file must now include all copies of contracts of key controlled transactions with the taxpayer as well as its annual report. The requirements for the analysis of comparable data for transactions were revised: the new regulation defines the term price range as the comparable data results from the first quartile to the third quartile, whereas the previous definition encompassed all results (from the statistical minimum to the maximum result).
In addition, the regulation includes an updated list of factors that must be taken into account for the determination of the arm’s length value of financial transactions and provides additional comparability criteria for the determination of the arm’s length value of transactions with intangible property.
The regulation incorporates a new term – low value-adding intra-group services – for which comparison data need not be provided to prove that a 5% profit margin is at arm’s length. .
Further information: Tax Advisor Maike Leppik, email@example.com