• Income Tax Act No. 595/2003 Coll. (Sections 2/n-r, 2ab  16/2, 17/1, 17/5, 17/6, 17/7, 18, 18a)
• Double Tax Treaties
• Financial Reporters No. 14/1997, 20/1999, 3/2002 and 3/2024 where OECD Transfer Pricing Guidelines from 1995 and 1997 were published in Slovak language
• Financial Reporters No. MF/8128/2009-72, MF/23378/2014-74, F/011491/2015-724, MF/014283/2016-724, MF/019153/2018-724 and MF/020061/2022-724  where administrative guidance of the Slovak Ministry of Finance on content of the transfer pricing documentation were published

As an OECD Member State and an EU Member State, Slovakia adheres to the OECD Transfer Pricing Guidelines and to the EU Code of Conduct on transfer pricing documentation for associated enterprises. Slovakia also acceded to the EU Arbitration Convention, which establishes a procedure to resolve disputes where double taxation occurs between enterprises of different Member States as a result of an upward adjustment of profits of an enterprise of one Member State.

Applicability

The arm’s length principle is based on a comparison of the terms which were agreed in any business or financial transactions between related parties and the terms which would have been agreed between unrelated parties in similar business or financial transactions, in comparable circumstances.

The review of comparability of the terms is made by confronting in particular the businesses conducted by the parties, including, but not limited to their production, assembly works, research and development, purchase and sale, the scope of their business risks, the characteristics of the compared property or the service, the terms agreed between the parties to the transaction, the economic environment in the marketplace, and the business strategy. The terms shall be considered comparable if there is no difference at all or if only minor adjustments would compensate such a difference.

If there is a difference between the prices agreed in transactions of related parties, and the prices applied between unrelated parties in comparable business transactions, as long as such difference results in a reduction of the tax base or increase of tax loss, the related party shall increase its income tax base by that difference. As from January 1, 2023, the materiality threshold was introduced for controlled transaction (or group of controlled transactions that may be aggregated), for which such tax base adjustment is required. As qualified controlled transaction is considered a legal relationship or other similar relationship in which one or more related parties achieve taxable income or tax-deductible expense exceeding EUR 10,000. In the case of loan transaction, the qualified transaction is with a principal amount above EUR 50,000

As of January 2023, the use of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations was formalized in Slovak legislation.

From the same period, the legislation also introduced an adjustment of the transfer price to the median value during tax audits. This applies to cases where the transfer price is determined using a range of arm’s length values.

This change has already been actively reflected in tax audits focused on transfer pricing, which were initiated in 2024.

General terms

As from January 1, 2023, it is also extended that by economic tie shall be understood along:

• the relation between tax resident taxpayer and his permanent establishments abroad,
• the relation between tax non-resident and his permanent establishments in Slovakia,
• the relation among permanent establishments of taxpayers that are considered as related parties in the sense of the abovementioned, and the relation between such permanent establishment and such taxpayer
• also the relation among permanent establishments of the taxpayer.

Content

The transfer pricing documentation represents a set of information, data and facts which demonstrate and explain the method of taxpayer’s price formation in controlled transactions.

Transfer pricing documentation in general consists of general and of specific part.

General rules

Since January 1, 2009, Slovak taxpayers have been required to prepare and maintain transfer pricing documentation supporting the transfer pricing method used in transactions with related parties. From 2009 to 2014, the obligation to prepare and maintain transfer pricing documentation applied only to foreign related parties. However, since 2015, transfer pricing rules and the associated obligation to maintain documentation have been extended to include domestic related parties as well.

The documentation must be prepared separately for each transaction or homogeneous group of transactions with the same related party. Aggregation is allowed only under certain conditions:

• Transactions conducted under the same terms,
• Transactions that are closely interlinked or mutually dependent,
• Transactions that are comparable in terms of assets used, functions performed, and risks assumed.

In general, aggregation should provide a better overall understanding of the specific transfer pricing methods applied.

The required content of transfer pricing documentation is specified in the Ministry of Finance of the Slovak Republic Guideline, published in the Financial Bulletin.

The Guideline must comply with the EU Code of Conduct on Transfer Pricing Documentation for Associated Enterprises in the European Union (No. 2006/C 176/01) and the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (hereinafter referred to as the “OECD Guidelines”), which reflect changes in transfer pricing documentation requirements in line with the BEPS Action 13 report on transfer pricing documentation and country-by-country reporting.

This Guideline specifies the minimum scope of documentation. The content of the documentation depends on the circumstances and conditions of the taxpayer’s controlled transactions, as well as the valuation method used.

Documentation is prepared for the respective tax period. If no new facts arise that affect the valuation method of controlled transactions, the taxpayer may refer to the information provided in the documentation for previous tax periods when preparing the current documentation.

Since 2014, transfer pricing documentation must be submitted within 15 days of receiving a request from the tax authority. The documentation does not need to be disclosed unless specifically requested by the tax office. In justified cases, tax authorities may request transfer pricing documentation without initiating a tax audit prior to issuing the request.

As of January 1, 2023, taxpayers are allowed to submit the documentation in a language other than the official state language. However, upon request by the tax authority or the financial directorate, the documentation must also be provided in the state language within 15 days of receiving the request.

Transfer pricing documentation shall be kept for the respective tax period. If no new facts occur – facts that would affect the valuation method for controlled transactions, when preparing documentation for the next period – a taxpayer may refer to information stated in documentation for the previous taxation periods.

Deadlines

The taxpayer shall submit the transfer pricing documentation within 15 days from delivery of the tax administration’s or financial directorate’s request. This period is not possible to extended. The Income Tax Act gives to tax office the opportunity to ask the taxpayer to submit documentation at any time, not only when opening a tax audit. Therefore, it is necessary to pay attention to the preparation of the documentation already during the tax period and not after the delivery request from tax office. Failure to submit documentation may not only be sanctioned by a penalty but may also lead to the tax officer’s suspicion that the company does not have evidence of compliance with arm’s length principle, and therefore failure to submit documentation may also lead to the opening of the tax audit.

Documentation types

There are three different types of transfer pricing documentation in terms of the required minimum scope:

For further information regarding the tax reliability index of taxpayers valid from January 1, 2022 please see our News Flash.

Obligation to keep the documentation

Full documentation has to be kept by the following taxpayers:

• taxpayers who follow for statutory purposes the IFRS in booking or closing of booking – the obligation to keep a complete documentation is with respect to significant cross-border controlled transactions;
• taxpayers that are engaged in the cross-border controlled transaction with value exceeding 10 million EUR per FY;
• taxpayers who perform significant business transactions with a related party seated in a state which Slovakia has no double tax treaty or international tax information exchange agreement with;
• taxpayers who are engaged in the controlled transactions with respect to which they opt for an APA (Advance Pricing Agreement)
• taxpayers who asks for secondary adjustments for the controlled transaction according to double tax treaties
• taxpayers who are engaged in the controlled transactions with respect to which there was a request filed for a mutual agreement procedure according to a tax treaty;
• taxpayers who claim a tax relief – the obligation to keep a complete documentation is with respect to significant cross-border controlled transactions.

In other cases, the taxpayer is obliged to keep a basic documentation for the following transactions:

• cross-border controlled transactions with annual value exceeding 1 million EUR;
• non-significant transactions with a related party seated in a state which Slovakia has no double tax treaty or international tax information exchange agreement with;
• significant cross-border controlled transactions, if the taxpayer’s total operating and financial revenues per tax period exceed 8 million EUR;
• significant domestic controlled transactions, if the taxpayer claims a tax relief.

If neither complete documentation nor basic documentation is prepared on controlled transaction, taxpayer is obliged to keep on such transaction a shortened documentation (following the template prepared by the Slovak Ministry of Finance), except for some cases, when it is sufficient to properly report controlled transactions in income tax return only.

Also, some Slovak public entities may qualify for keeping of shortened documentation.

In that respect it has to be mentioned that simplified types of documentation may in the listed cases be sufficient from administrative point of view but will not help a taxpayer to prove the application of the arm’s length principle, unless a comparability analysis is made. Therefore, any material transaction from the perspective taxpayer is recommended to be followed by functional and risk analysis and benchmarking.f documentation may in the listed cases be sufficient from administrative point of view but will not help a taxpayer to prove the application of the arm’s length principle, unless a comparability analysis is made. Therefore, any material transaction from the perspective taxpayer is recommended to be followed by functional and risk analysis and benchmarking.

Any traditional and other transfer pricing methods according to OECD Transfer Pricing Guidelines can be used while the principle of the best method shall be applied. Also, combination of more methods is possible if necessary. If appropriate, other methods may be used by Slovak taxpayers, too.

Methods based on comparison of prices

Methods based on comparison of profits

A taxpayer may request the tax authority to approve a chosen transfer pricing method for transactions with related parties. The tax authority can approve the method (by issuing a decision) for a maximum of five tax periods. The Income Tax Act does not explicitly stipulate that the tax authority can approve a specific price or a specific profit margin or markup percentage. Instead, the tax authority can approve, based on the taxpayer’s request, the practical application of the transfer pricing method (e.g., the process of identifying comparable transactions or entities).

In this regard, an APA (Advance Pricing Agreement) should provide taxpayers with reasonable certainty.

The APA request must be submitted at least 60 days before the start of the tax period in which the proposed method is to be applied.

The tax administration shall issue a decision on the approval of the valuation method valid for no more than five tax periods. Extension for next five years is possible if the taxpayer demonstrates that no change has occurred in the conditions upon which the decision was issued. The same applies when submitting a request for determining the tax base of a permanent establishment

In the case of bilateral and multilateral APAs, the APA can be agreed for more than five years, including retroactively (rollback), if the competent authorities agree to it.

The fee for applying for the APA as from January 1, 2017 does no longer depend on the value of the business case, but is to be set as follows:

From January 1, 2022, the statutory fee is half for a taxpayer who is considered highly reliable at the time of application based on the evaluation of the tax reliability index. For further information regarding the tax reliability index of taxpayers valid from January 1, 2022 please see our News Flash.

The reduced amount of the fee for the APA for highly reliable taxpayers will be applicable only after the first delivery of the notification of the index of tax reliability.

A corresponding adjustment in transfer pricing (TP) refers to a situation where the tax authority of one jurisdiction adjusts the tax base in relation to transfer pricing, and the tax authority of another jurisdiction makes a similar adjustment to prevent double taxation of the same income.

The corresponding adjustment is part of the rules to prevent double taxation and ensure a fair allocation of tax rights between different countries in the case of cross-border transactions between related parties. If one country adjusts the transfer price to reflect the true value of transactions between related parties, a tax base adjustment may also occur in the other country to ensure that the same income is not taxed twice.

This process is outlined in international agreements such as Double Taxation Agreements (DTAs) and within the OECD guidelines, which promote a consistent approach to transfer pricing between countries. If a tax base is adjusted in one jurisdiction, the taxpayer has the right to request a corresponding adjustment in the other jurisdiction to prevent double taxation.

Since January 1, 2017, a new procedure for the “automatic” corresponding adjustment of the tax base downward (i.e., domestic corresponding adjustment) has been introduced for Slovak taxpayers. If a taxpayer or the Slovak tax authority makes an adjustment to the tax base in accordance with the arm’s length principle, the corresponding tax base adjustment can also be claimed by another related party considered a Slovak taxpayer.

The notification of the “domestic corresponding adjustment” must be submitted using the official form published by the Financial Directorate of the Slovak Republic. The notification must be filed within the deadline for submitting the corporate income tax return for the period in which the tax base was adjusted due to transfer pricing.

EUR 3,000 is the maximum penalty for non-compliance with the transfer pricing documentation obligations, for a breach of a non-monetary obligation can be levied.

In assessing the penalty for the violation of non-monetary obligations, tax authorities must take into account all the circumstances that led to the violation (e.g., the importance, duration, and consequences of the violation).

Moreover, the tax base may be adjusted, and additional tax may be levied by Slovak tax authorities during the tax inspection.

The tax authority can assess a tax difference up to 10 years after the end of year, in which the obligation to submit a tax return has arisen, i.e. tax return can be a subject of tax inspection for 11 years.

6*ECB rate or 20% p.a. is the penalty rate from the tax difference instead of 10% p.a. or 3*ECB rate (higher rate shall be applicable). Since January 1, 2017, stricter penalties have been applied for intentional violations of the arm’s length principle. Doubled penalties will apply to taxpayers who intentionally reduce their tax base or increase their tax loss through transfer pricing. In such cases, a penalty of 20% per annum will be applied.