The duty to compile tax documentation as well as to determine formal and subject-matter criteria which should be followed is stipulated in article 9a of the Corporate Income Tax Law. In line with article 11 item 4 of the Law, domestic entities are related whereby:
- the domestic entity directly or indirectly participates in managing other domestic entity or in controlling it or holds shares in the equity of a different domestic entity, or
- the same legal entities or private individuals simultenously participate directly or indirectly in managing domestic entities or in controlling them or hold shares in the equity of those entities.
The objectve of the documentation is to confirm that:
- Transactions between related entities take place under market conditions, which means that as a result of existing links, conditions which would differ from those that would be agreed upon by independent entities have not been agreed or imposed.
- No situation arose where related entities would fail to disclose income or would disclose income which is lower than would otherwise be expected if such links did exist.
- Prices applied in trade between related entities are not transfer prices in nature.
The term ‘transfer prices’ refers to prices applied in all transactions conducted between related entities which do not reflect the market value of a transaction and which could be used to allocate income within the group of related enterprises in order to neutralize tax burden.