The tax authorities have the right to verify the arm’s length nature of the prices set in transactions between related entities. The course of transfer pricing research by the tax authorities is specified in the tax law. The test procedure itself has a formalized form and takes place at appropriate stages. It is therefore worthwhile for taxpayers conducting transactions with related entities to be aware of the principles and rules to which they are subject. This is especially important in the event of a possible transfer pricing control.
The administrative and court procedure regarding transfer pricing includes the following stages:
- checking activities
- tax inspection
- tax proceedings in the first instance
- tax proceedings in the second instance
- court proceedings before the Provincial Administrative Court
- court proceedings before the Supreme Administrative Court
Sanctions for failure to complete transfer pricing documentation
The taxpayer may be subject to sanctions when the taxpayer fails to fulfill or incorrectly performs the obligations related to the submission of transfer pricing documentation to the tax authorities or fiscal control authorities.
Sanctions can be divided into two categories:
- sanctions directly affecting the taxpayer, which are imposed on the basis of tax regulations
- sanctions threatening the head of the entity / members of the management board / financial directors / chief accountants, imposed on the basis of penal fiscal regulations.
If the taxpayer fails to submit a declaration on the preparation of local transfer pricing documentation or it contains false information, the legislator has the right to impose sanctions.