TRANSFER PRICES AND TRANSACTIONS WITH RELATED PARTIES

Abstract

The transfer prices, according to which the transactions between taxpayers are valued, are one of the main areas with whom the domestic and international companies and their tax administrations are dealing. The essence of the transfer pricing formation is in determining their height in accordance with the usual market prices. The general concept incorporated in the Profit Tax Law is that transactions between related parties should be made at market prices. The topic of transfer prices is becoming more and more controversial. The governances of the countries around the world, are trying to cope with tax evasion and transfer profits in different jurisdictions. When the independent enterprises enter into mutual transactions, the conditions of their commercial and financial relations (for example, the price of the transferred good or the provided services and conditions for transmission or giving) are usually determined in compliance with the market conditions. When related enterprises perform transactions with each other, it is possible that their commercial and financial relationships are not directly affected in the same way by the external market forces, although associated enterprises often seek in their mutual transactions to replicate the dynamics of market forces. An appropriate calculation of transfer pricing is important for determining the profits of the company, which is the basis for taxation of the corporate income tax. Tax regulations require, the prescribed transfer pricing methods shall be taken into account in transactions within an international company or related entities among themselves. Such a method is a comparison with the market price, which is a result of the supply and demand on the market In doing so, the company (taxpayer) must provide documentation of related entities, the extent and nature of their business relationships and the methods used in their mutual transactions. In addition, they must keep the documentation for a period of ten years.