Exemption from the documentation obligation

In December 2018, the Ministry of Finance of the Slovak Republic issued an amendment to the guidelines, which regulates the requirements for the content of transfer documentation. The most basic changes brought about by this guidance are described in the previous article as well as the content obligations for individual types of transfer documentation. The Guidance has also introduced other new features that are important to be aware of in relation to the preparation of transfer documentation.

Exemption from the documentation obligation

Under the new transfer guidelines, there is no need to prepare documentation for insignificant transactions below EUR 1 000 000 and for any entity transactions if you are not an audited company. This means that in the case of audited transactions where no documentation is prepared, the documentation obligation is fulfilled by filing a duly completed income tax return for the relevant tax period.

It is, however, necessary to point out that even if entities are “relieved” of the obligation to draw up transfer documentation, they are still obliged to have the prices adjusted in accordance with the arm’s length principle and, in the event of non-compliance, the tax administrator may proceed to adjust the tax base and penalise the taxpayer.

Some principles of the documentation obligation

This Guideline specifies the minimum scope of the documentation. The tax administrator may request the entity to submit additional information to demonstrate that the prices used in the controlled transactions comply with the arm’s length principle. As mentioned above, irrespective of the extent of the documentation set out in the Guidelines, the tax administrator has the right to request additional information in the context of a tax audit to prove that you have set transfer prices.

A taxpayer shall not prepare documentation in respect of transactions that do not affect that taxpayer’s income tax base. This provision is somewhat non-standardly worded and gives the impression that there may be transactions which do not adversely affect the tax base. However, these are transactions the income from which is exempt from tax under the Income Tax Act or is not subject to tax. However, if the income is income where, in the case of one entity, that income is not subject to tax or is exempt from tax, this relief from the preparation of documentation applies only to that entity. On the other side of the transaction, the transaction may be a tax expenditure and may affect the tax base, in which case the documentation of the transaction shall be maintained by the other entity.

There was no provision in the previous guidance that clearly stated whether, for financial transactions, the principal or the amount, e.g. interest. This new guidance clearly answers that the principal of the financial transaction is used.

The Guidance further provides that if a taxpayer prepares general group documentation for a taxable year to the extent of complete transfer documentation, it does not prepare general group documentation to the extent of the basic transfer documentation. However, such a modification of the transfer documentation is evident even without an explicit modification, since the scope of the general full transfer documentation is far broader than that of the basic transfer documentation and covers all the information of the basic transfer documentation.