Sanctions for failing to prepare transfer pricing documentation
The tax authorities are entitled to verify whether the prices set in transactions between related parties are at arm's length. The course of a transfer pricing examination by the tax authorities is laid down in tax law. The examination procedure itself is formalised and takes place in defined stages. It is therefore worth taxpayers carrying out transactions with related parties being aware of the principles and rules to which they are subject. This matters in particular in the event of a transfer pricing audit.
The administrative and judicial procedure concerning transfer pricing comprises the following stages:
- verification activities
- tax audit
- tax proceedings at first instance
- tax proceedings at second instance
- court proceedings before the Provincial Administrative Court
- court proceedings before the Supreme Administrative Court
Where a taxpayer fails to perform, or performs improperly, the obligations connected with producing transfer pricing documentation to the tax authorities or the fiscal control authorities, it may be subject to sanctions.
The sanctions fall into two categories:
- sanctions directly affecting the taxpayer, imposed on the basis of the tax rules
- sanctions facing the head of the entity, the members of the management board, finance directors or chief accountants, imposed on the basis of the fiscal penal rules.
Where a taxpayer fails to file the statement on the preparation of the local transfer pricing documentation, or where that statement contains untrue information, the legislator is entitled to apply sanctions.