Transfer pricing documentation obligations for Estonian CIT taxpayers
After the entry into force of the Estonian CIT regulations, taxpayers using this form of taxation began to have doubts as to whether the transfer pricing provisions also apply to them or whether they can benefit from the exemption from preparing transfer pricing documentation under Article 11n(3) of the CIT Act.
This exemption applies to controlled transactions, the value of which does not permanently constitute income or deductible costs in its entirety, excluding financial transactions, capital transactions and transactions concerning investments, fixed assets or intangible assets.
As the categories of taxable income and deductible cost do not exist for taxpayers subject to Estonian CIT, taxpayers take the position that they are not obliged to prepare local transfer pricing documentation, including transfer pricing analyses.
The tax authorities take the opposite view and do not share the taxpayers’ position. It follows from the authorities’ current line of interpretation that entities taxed with Estonian CIT are subject to the obligation to prepare transfer pricing documentation if they meet the statutory prerequisites imposing such an obligation. This is confirmed by a number of individual interpretations in which the tax authorities emphasise that the transfer pricing provisions apply to all taxpayers, including those under the Estonian CIT regime.
– The position presented by the tax authorities is also shared by the administrative courts, arguing that the interpretation made by taxpayers is inconsistent with the systemic interpretation and the literal content of the provisions, which do not limit their application to tax revenues and deductible costs only. What is more, the aforementioned provisions are general norms, which speak about tax revenues and tax deductible expenses, but also about any type of activity that is carried out by a taxpayer taxed under general rules as well as under special rules, explains Rafał Boguszewski of Thedy & Partners.
Taking the above into account, taxpayers taxed under Estonian CIT are obliged to prepare transfer pricing documentation for transactions carried out with related parties when statutory requirements are met.