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Transfer pricing in a rapidly changing environment

The current economic development has a significant impact on the functioning of many companies. The main topic of recent months is a high inflation. However, there are several other factors that affect companies' transfer pricing policies.

In January 2022 inflation in Slovakia climbed to 8.4%, which is the highest monthly value over the last seventeen years1. Inflation is linked to pressure from employees to increase wages in the phase of persistent labour shortage. Inflation is also reflected in increase of production costs, which reduces companies' profitability.

Issues also prevail in supply chains, with the automotive industry being an example. This sector will face many challenges in 2022, including a gradual transition to electromobility.

At the same time, the business models of companies respond to various commercial and geopolitical problems, climate change, remote working, ESG agenda, new technologies and others.

The changes in the way of work, which the pandemic has brought have intensified globalization and the fight for talents in the labour market. Additional tax issues arise for multinational companies in terms of personal income tax (where the employee is to tax their income and pay taxes), but also in terms of transfer pricing (to which country the group's profits are to be allocated). Traditional approaches to transfer pricing may no longer be suitable with new and innovative ways of carrying out business.

The OECD base erosion and profit shifting (BEPS) project has led to a significantly increased transparency in transfer pricing. However, the BEPS 2.0 initiative is already on the horizon with even greater degree of complexity in the field of global taxation.

Therefore, several fundamental questions arise regarding the current development of the business environment:

  • Does the current setting of the transfer pricing policy generate sufficient profitability for the company?
  • Would independent comparable companies make price adjustments?
  • Does the company's functional and risk profile reflect the actual functions performed and risks borne?
  • Is the transfer pricing documentation prepared in adequate scope?

If these questions are relevant to you, we will be happy to discuss the topic of transfer pricing with you.

 

1Statistical Office of the SR

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