Transfer Pricing
Country Summary
Slovakia

This document summarizes the transfer pricing requirements and regulations in Slovakia. The Slovak tax system, established in 1993, has increasingly focused on preventing related party transactions from deviating from arm’s length prices. Slovakia’s accession to the OECD in 2000 marked a pivotal moment for its transfer pricing regulations. Taxpayers in Slovakia can now utilize OECD Guidelines with reasonable confidence. The document also discusses the legal framework, documentation requirements, industry and company analysis, transfer pricing methods, and penalties for non-compliance.

Overview:

Slovakia’s Transfer Pricing Evolution

In 1993, Slovakia’s tax system began addressing related party transactions’ arm’s length pricing to prevent deviations. Slovakia’s OECD membership in 2000 brought significant changes to its transfer pricing landscape, allowing taxpayers to apply OECD Guidelines with confidence.

Regulatory Framework

Slovakia’s transfer pricing regulations, effective since 2009, explicitly establish the arm’s length principle. Rules also cover deadlines for documentation submission and expanded applicability to domestic related parties. The OECD Transfer Pricing Guideline (TPG) serves as an explanatory instrument, though not legally binding. CbC reporting standards, mirroring OECD’s, were incorporated in local legislation in 2017.

Definition of Related Party

Related parties include economically, personally, or otherwise connected individuals or entities, subsidiaries, and those with economic or personal connections. Several criteria define related party relationships.

Nature of Transfer Pricing Documentation

Slovakia predominantly aligns with the OECD Guidelines. Tax officials often follow these guidelines in practice. Taxpayers have been required to maintain TP documentation since 2009. The Ministry of Finance provides recommendations for documentation content.

Advance Pricing Agreement (APA)

Taxpayers can request APAs in Slovakia, with options for approval of specific pricing methods and their practical application. Submission deadlines apply, with fees varying based on the type of APA.

Audit Practice

Slovak tax authorities have increased their focus on transfer pricing. This heightened scrutiny requires companies to prepare comprehensive documentation, especially for transactions with government participation or public interest.

Transfer Pricing Documentation

Documentation requirements in Slovakia encompass three categories: Full Transfer Pricing scope documentation, Basic Transfer Pricing documentation, and Abbreviated Transfer Pricing documentation. These requirements depend on various factors such as financial statement obligations, transaction details, and tax relief utilization.

Industry and Company Analysis

Value drivers in specific industries provide insights into common profitability levels. Detailed descriptions of the business, management structure, and involvement in restructurings or intangibles transfers are vital aspects of company analysis.

Functional Analysis

Functional analysis assesses the activities, responsibilities, assets used, and risks assumed by related parties involved in the transactions. This aligns with recommendations in the OECD Guidelines.

Choice of Transfer Pricing Method

Slovakia follows OECD-recommended transfer pricing methods, including Comparable Uncontrolled Price Method, Resale Price Method, Cost Plus Method, Transactional Net Margin Method, and Profit Split Method. No hierarchy among these methods is specified.

Economic Analysis – Benchmark Study

Comparables are accessible through the Pan-European database Amadeus. While benchmark studies are not mandatory for all documentation, tax authorities often request benchmark analyses.

Inter-company (IC) Legal Agreement

IC legal agreements are less emphasized due to the ‘conduct of parties’ concept outlined in the OECD 2017 Guidelines.

Financial Statements

Specific obligations apply to foreign-related parties concerning their financial statements.

Production Process for TP Relevant Returns, Documents, Forms, and Financials

Filing and documentation requirements, deadlines, thresholds, and mandatory languages are outlined. Documentation in Slovak is required, with exceptions subject to approval.

Notification Requirement

CbC notifications include extensive entity information and must be submitted by the corporate income tax return deadline. Penalties apply for non-compliance.

Record Keeping

Maintaining TP documentation records for a minimum of five years is mandatory.

Penalties and Interest Charges

Penalties apply for non-submission of documentation or non-compliance. Tax underpayment due to non-arm’s length pricing incurs substantial penalties. Violating anti-avoidance rules results in doubled sanctions.

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