Nowadays the transfer pricing issues are becoming more and more important for the corporate management, not only because of constantly increasing complexity and variety of the transactions between the affiliate companies, but also due to the raising control from tax authorities.
Transfer pricing basically means that supply of goods and services within the group of companies must be at the arm’s length prices. Transfer pricing law and practice prevents the transferring the profits outside the country, by manipulating with the prices in order to benefit from the more favorable tax regime in the other countries or for other reasons.
Transfer pricing is associated with a number of difficulties and therefore should be regarded as one of the business risks. That is why it is important for a businessman to have knowledge about transfer pricing policy.
Also transfer pricing documentation is important part of a company’ s internal policies. The taxpayer must be able to demonstrate and to justify the selected transfer pricing method for determining the transfer price, in the event of State Revenue Service audit. The State Revenue Service has the right to compare the prices applied by a tax payer with arm’s length, and if in transactions with related person the purchase price is above arm’s length, but the sale price – below, then the taxpayer must adjust its taxable income, thus increasing the payable tax.
Inappropriately applied tax laws may significantly affect the business activity. For example, the taxpayer cannot always compensate the tax paid at the wrongful decisions of the tax authority. Often, the claims of the tax authorities may negatively affect the company, and sometimes even endanger the existence of the company. Therefore, it is important for the company to avoid such disputes on transfer pricing.