What changes with the new Guidelines on the content of the transfer pricing documentation?
The new Guidelines came with several changes. The most significant of them relate to the new definition of significant controlled transaction, the criteria for determining the scope of the taxpayer's documentation obligation, as well as the modification of the documentation content for permanent establishments.
At the end of the year 2022 the new Guidelines of the Ministry of Finance of the Slovak Republic No. MF/020061/2022-724 on determining the content of the transfer pricing documentation (hereinafter “MF SR Guidelines 2023”) were issued. MF SR Guidelines 2023 replaced the Guidelines no. MF/019153/2018-724 (hereinafter “MF SR Guidelines 2018”) and for the first time are to be used for preparation of the transfer pricing documentation for the tax period starting after December 31, 2022.
The amendment to the Income Tax Act introduced the concept of significant controlled transaction, according to which transactions with a value of up to EUR 10,000 are considered insignificant. Credits or loans are considered insignificant from, if their principal did not exceed the value of EUR 50,000. As transfer pricing rules do not apply on insignificant transactions, the taxpayer does not have to include them in the transfer pricing documentation. Since the former Guidelines worked with similar concept, It was subsequently necessary to update them, in order to remove ambiguities. After all, for the purposes of determining the obligatory scope of transfer pricing documentation, it is still necessary to assess significance of transactions according to accounting regulations, i.e. same way as before the update.
MF SR Guidelines 2023 still recognize three types of the documentation scopes from content perspective - simplified, basic and full-scope, and in terms of content, no significant changes were made.
However, significant changes were made in respect of criteria for obligation to keep documentation in simplified scope. According to new rules, the obligation to prepare such documentation, in case of significant transactions have all of the taxpayers, which in the relevant tax period: reported tax loss; applied for tax loss deduction; or did not apply the tax rate according to § 15 letter a) point 2 or letter b) point 1a of the Income Tax Act. We would like to stress mainly the last mentioned criterion, as it extends the documentation obligation to all taxpayers whose turnover for a maximum of 12 previous consecutive calendar months reached EUR 49,790.
It remains valid, that the taxpayer does not have to prepare documentation related to transactions that do not affect the income tax base of the taxpayer. However, the MF SR Guidelines 2023 Guidelines introduce an exception for credit and loans, where the taxpayer is always obliged to document them.
The guidelines also regulate the mandatory content of the documentation for permanent establishments. If permanent establishment claims financing costs as tax deductible expense, transfer pricing documentation must also include a description of the allocation method of capital and the allocation method of financing costs.