Transfer pricing

Creation of transfer pricing reports involves the preparation of documentation in accordance with legal regulations, necessary for the analysis and creation of the reports submitted with the taxpayer’s tax balance.

The transfer pricing report includes the following basic elements:

• Analysis of the group of related entities to which the taxpayer belongs

An analysis of a group of related entities comprises a description of the industry in which related entities operate and an analysis of their organizational and legal group structure, including history and general financial data for each member of a group of related entities.

As the part of this analysis, a description of the business and business policy between related entities is also provided, as well as changes in business policies in relation to previous tax periods.

• Analysis of the industry

The analysis of the industry refers to the description of all the activities within which the taxpayer operates, regardless which activity is defined as its predominant activity. In this part of the report, information on market conditions, legal regulations, market share, competition, etc. is presented.

In addition to the above information, this part also includes information regarding factors that potentially have influence on the formation of prices within the activity concerned, on the profitability factors of companies within the scope of the activities concerned, as well as information on the risk that companies encounter during the performance of their activities.

• Functional analysis

In the functional analysis, the defined transactions with related entities are described in detail.

This section includes information on types of transactions (transaction description, contracts, unified or explanatory approach, etc.), then information on factors that have affected the formation of prices in transactions with related entities, as well as information on the planned development of business relationships and transfer pricing policies with related entities.

• Selection of the method for checking the transfer pricing compliance with the “arm’s length” principle

In this section, methods for checking the transfer pricing compliance with prices determined by “arm’s length” principle are analysed and the choice of one of the following methods is explained:

    • method of comparable price on the market,
    • resale price method,
    • net cost-plus margin method
    • transactional net margin method
    • profit distribution method

• Conclusion

The conclusion determines the factual situation, the need to make certain corrections actually, or the conclusion that the prices in transactions with related entities are in accordance with the prices established by the “arm’s length” principle is drawn and in this case the need for the corrections is excluded.

• Appendix – overview of used data.

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