Transfer pricing adjustment – do the new obligations apply to your company?

8 February 2021

Please be reminded that the Corporate Income Tax Act contains detailed rules for the admissibility of transfer pricing adjustments (TP adjustment) from 1 January 2019.
 

What is a TP adjustment

In October 2020, the Ministry of Finance published draft explanatory notes where the “transfer price” was defined as “the price, consideration, profit (loss), financial ratio or otherwise set profit (loss) arising from the terms agreed or imposed between associated enterprises as a result of the relationship existing between them”. “Transfer pricing adjustment” means an adjustment (correction, modification) of a transfer price. A TP adjustment should be recognised in the year it relates to and confirmed in the annual tax return.

 
Not every adjustment of a transfer price is a TP adjustment

The Ministry points out that not every adjustment of a transfer price is a transfer pricing adjustment in the meaning of the regulations. Appropriate classification as a TP adjustment (or not) has a huge impact on the correct recognition in the relevant period, which affects the correctness of the entity's profit (loss) for tax purposes. According to the draft explanatory notes, the transfer pricing adjustment may also mean an adjustment of budget costs to actual costs in accounts between associated enterprises.
 

How can we help

Rödl & Partner Transfer Pricing Team has learnt from the Ministry of Finance that work on the final version of the explanatory notes is still ongoing and their publication date is unknown.
 
Therefore, we recommend a customized check whether the new rules for the TP adjustment may apply to your company and that you consider applying for an advance tax ruling in this respect. We also encourage you to review whether any intra-group payments directly related to the COVID-19 pandemic constitute a TP adjustment.