Extension of the scope of full documentation in the new transfer documentation guidance

The Ministry of Finance of the Slovak Republic has decided to unify the scope of full documentation with the scope required and set by the OECD Transfer Pricing Directive . This step has significantly increased the scope of required data in the general group documentation (master file), but also in the specific documentation (local file).

On the other hand, however, it has narrowed the scope of persons and transactions for which it prepares full transfer documentation. First of all, full transfer documentation is maintained for significant transactions and the materiality threshold has been increased from EUR 1 million to EUR 10 million. At the same time, for a taxpayer claiming tax relief, the full transfer documentation only applies to cross-border transactions and the requirement for full transfer documentation for the amortisation of a tax loss has been abolished .

Under the Guideline general transfer documentation contains the following information:

• identification and legal form of the individual members of the group of dependent persons (hereinafter referred to as the “Group”), description of the organisational and ownership structure of the Group, including changes compared to the previous tax period;
• a description of the Group’s business activities and business strategy;
• the main drivers of the Group’s profitability;
• a description of the supply chain and markets of the Group’s top five (or, if fewer than five, all) product or service categories,
• a description of the supply chain and markets of the Group’s product or service categories that represent more than 5% of the Group’s turnover;
• a list and brief description of significant service arrangements within the Group, excluding research and development services, and how these services are valued;
• a brief description of the functions, risks and assets of each member of the Group, including changes from the previous tax period;
• a description of significant changes in the Group’s structure, significant acquisitions or disposals of parts of the Group;
• a description of the Group’s overall strategy for the creation, holding and utilisation of intangible assets, including the location of the Group’s principal R&D facilities and the locations from which R&D activities are managed;
• a list of significant items or categories of the Group’s intangible assets, with an indication of their owner;
• a list of significant agreements between members of the Group relating to intangible assets, including cost contribution agreements, licensing agreements and research and development services agreements;
• a general description of how the Group prices controlled transactions relating to intangible assets;
• a general description of significant changes in ownership of intangible assets between dependants during the tax year, including the identification of the relevant members of the Group and the consideration for those changes;
• a general description of the Group’s financing arrangements, including significant financing arrangements with independent parties;
• Identification of Group members that carry out centralised Group financing activities;
• a general description of the pricing method for financial transactions between members of the Group;
• the consolidated financial statements of the Group for the relevant fiscal period, if any, prepared up to the time of submission of the documentation;
• a list and brief description of existing pre-measurement arrangements and binding tax rulings relating to the allocation of profits among the members of the Group; and
• other information that will contribute to demonstrating the consistency of the prices used with the arm’s length principle.

Specific transfer documentation contains the following information:

• identification and legal form of the taxpayer, description of its organisational and ownership structure, description of the organisational units within the Group to which members of the taxpayer’s management are subordinate within the Group’s organisational structure, including changes compared to the previous tax period;
• a description of the taxpayer’s business activities and business strategy, including changes in the structure of the business or transfers of intangible assets within the relevant or previous tax year, including changes from the previous tax year;
• for a single controlled transaction or group of controlled transactions:

1. a description of the controlled transaction or group of controlled transactions and the circumstances in which it takes place;
2. a financial statement of the value of the controlled transaction or group of controlled transactions for the relevant tax period, broken down by individual dependants;
3. a copy of the contract for the relevant controlled transaction or group of controlled transactions, if available in writing;
4. an analysis of the functions, risks and assets of the taxpayer and relevant dependants in relation to the transaction in question;
5. the method used to measure the controlled transaction and the rationale for its use, including the assumptions underlying the use of the method;
6. the selection of the tested party for the purpose of the comparability analysis, including the rationale for the selection, if relevant;
7. internal comparable transactions, external comparable transactions or arm’s length data, including a description of the sources and method of obtaining that data, comparability analysis (information on factors determining the comparability of controlled transactions with uncontrolled transactions, characteristics of the asset or service, analysis of functions, contractual terms, economic environment, specific business strategies);
8. a description of adjustments for comparability purposes, if any;
9. the rationale for the consistency of the valuation of the controlled transaction or group of controlled transactions with the arm’s length principle;
10. a summary of the financial information used in applying the particular valuation method to the controlled transaction or group of controlled transactions and a description of how it relates to the taxpayer’s financial statement data;
11. a copy of the prior valuation measures relating to the controlled transaction or group of controlled transactions in question, e.g. agreement on the valuation method, if this measure was not issued in the Slovak Republic;

• other information that will contribute to demonstrating the consistency of the prices used with the arm’s length principle.

Author of the article: Mgr. Andrej Choma, transfer pricing specialist