Estonia: Amendments to transfer pricing regulation

Transfer pricing documentation must include three components

Transfer pricing documentation must include three components

An updated transfer pricing regulation—amending and specifying the requirements for transfer pricing documentation and effective 1 January 2022—is intended to harmonize the existing transfer pricing rules with the general principles of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (2017).

The new regulation stipulates that transfer pricing documentation must include three components:

  • A Master file that contains the data on a consolidated group
  • A Local file (a taxpayer’s file on an Estonian company)
  • A country-by-country (CbC) report that corresponds to the requirements of the tax information exchange measures

The new transfer pricing regulation specifies the information that must be included in the Master file and in the taxpayer’s file (Local file). For example, the Master file must contain the annual report of the consolidated group as well as the description of: (1) the supply chain of its largest products and services; (2) the capacity to provide these services; and (3) its financing arrangements (including significant agreements with unrelated parties). The requirements on the information regarding the consolidated group’s intangible assets also have been updated extensively.

The taxpayer’s file (Local file) must now include all copies of contracts of key controlled transactions with the taxpayer as well as its annual report. The requirements for the analysis of comparable data for transactions were revised; the new regulation defines the term “price range” as the comparable data results from the first quartile to the third quartile, whereas the previous definition encompassed all results (from the statistical minimum to the maximum result). 

In addition, the transfer pricing regulation includes an updated list of factors that must be taken into account for the determination of the arm’s length value of financial transactions and provides additional comparability criteria for the determination of the arm’s length value of transactions with intangible property.

Finally, the regulation incorporates a new term—low value-adding intra-group services—for which comparison data need not be provided to prove that a 5% profit margin is at arm’s length.

Read a March 2022 report prepared by the KPMG member firm in Estonia 

 

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