Estonia recognizes the OECD Transfer Pricing Guidelines but without legal force. They have been translated into Estonian and serve as a reference when they don’t conflict with the local Regulation no. 53 drafted by the Ministry of Finance, effective since January 1, 2007.
The arm’s length rule, according to section 8 of the Income Tax Act, applies to transactions with both resident and non-resident affiliated firms in Estonia. The core of transfer pricing regulations is provided by the Ministry of Finance Regulation No. 53, titled “Methods for determining the value of transactions conducted between associated persons.” The Estonian tax authority encourages the use of OECD Transfer Pricing Guidelines as long as they align with the local Regulation. Documentation should be submitted within 60 days of a tax authority request.
Estonia defines related parties in Article 8 of the Income Tax Act, with the assumption of connections based on common business interests or one party’s dominant influence over the other. An illustrative list of associated persons is provided, including spouses, civil partners, relatives, companies within the same group, and more.
Since January 1, 2007, Estonia enforces documentation requirements for transfer pricing. All Estonian group businesses and permanent establishments must prepare transfer pricing documentation to demonstrate arm’s length intercompany transactions.
Estonia is considered a tax haven due to its low tax rates for non-resident companies. Despite being an EU member, it has a low-tax regime and is a gateway to both EU and Eastern markets. Estonia offers a solid banking system, making it attractive to businesses.
APAs are not applicable in Estonia. There’s no provision for filing APA requests.
Tax authorities in Estonia, specifically the TCB, conduct audits. VAT-related fraud and CIT audits are infrequent, with transfer pricing usually reviewed within broader audits. No specific deadlines for tax audit completion exist.
The documentation requirements in Estonia have been divided into a master file, a local file, and a country-by-country report since 2017. These requirements mainly apply to large corporate groups in Estonia. The documentation must meet detailed requirements and should be available for all transactions with related parties.
Assessing value drivers in the industry provides an indication of common profitability levels.
Local entity management structure, organizational chart, and business strategy descriptions are necessary, along with any involvement in business restructurings or intangible transfers.
An assessment of significant activities, responsibilities, assets, and risks is conducted, aligning with OECD Guidelines.
Estonia lists five acceptable transfer pricing methods, including traditional transactional methods and profit-based methods. When circumstances prevent their use, alternative methods may be applied with proper justification.
Comparability factors impacting transaction price are assessed, including transaction characteristics, duties performed, conditions, economic conditions, and business strategies.
Legal agreements between group entities have less significance, with the conduct of parties being more critical following OECD 2017 Guidelines.
Financial statements do not play a specific role in Estonia’s transfer pricing regulations.
Specific filing requirements for different aspects of transfer pricing documentation exist. There are no strict language requirements, but the tax authorities can request translations.
Groups must notify tax authorities within six months after the financial year, using the e-Taxboard system.
Documents relevant to transactions and payments must be retained for at least seven years.
Non-compliance with CbC reporting may result in penalties. Obstructing tax authority actions may lead to fines under Estonian law.