78 Explanation of transfer prices, how to fill out the form

Companies must complete and file Form 78 in order to provide information on the transactions that they have carried out during the tax year with a foreign related party referred to in section 31 of the Act on Assessment Procedure. In other words, Form 78 is not for giving details on any transactions conducted with a Finnish related party.

A related party refers to taxpayer's parent company or subsidiary or other member of the taxpayer's group. In addition, dealings between a foreign company and its permanent establishment in Finland must also be reported on the Form 78.

Fill in the form carefully. This reduces the Tax Administration's need to ask for more detailed information on transfer pricing (e.g. requests to submit transfer pricing documentation).

Which companies are obliged to submit Form 78?

If a company has an obligation to prepare and maintain transfer pricing documentation, it also has to submit Form 78 together with its annual tax return. In other words, if the company has not conducted transactions with a foreign related party during the tax year, it does not have to submit Form 78. Transfer pricing documentation does not have to be enclosed with the tax return. It needs to be submitted to the Tax Administration only upon request.

A company is obliged to prepare and maintain transfer pricing documentation if at least one of the following is true:

  • the company employs at least 250 persons
  • its turnover exceeds €50 million and its balance sheet total exceeds €43 million
  • it is not a small or medium-sized enterprise (under the definition of Commission Recommendation 2003/361/EC).

When the number of employees, the turnover and the balance sheet total are assessed as recommended by the Commission, the consolidated figures of the whole group are considered. This means that the consolidated turnover and the balance sheet total of the ultimate parent company and the number of employees of the whole group must be considered. Thus, the documentation obligation often applies also to small and medium-sized companies operating in Finland if they are part of a large international group.

The ‘linked enterprise’ term used by the Commission refers in practise to a group company. Linked enterprises’ turnover, balance sheet total and number of employees are always added to the taxpayer’s own financial information in their entirety.

The 'partner enterprise' term used in the Commission Recommendation refers to an enterprise of which the taxpayer has a holding at least 25 % but no more than 50 % of the capital or voting rights. In accordance with the Recommendation, the taxpayer may also need to add a proportion of its partner enterprises' turnover, balance sheet total and staff headcount to its own figures. This proportion should reflect the presentage of taxpayer's shares or voting rights.

Example: A Oy is a wholly owned subsidiary of X Ltd. There are 100 employees working for A Oy, its turnover reaches €45 million, and its balance-sheet total is €35 million. X Ltd has 200 employees on its payroll, turnover of €100 million, and a balance sheet total of €50 million. Combined, the turnover of A Oy and X Ltd reaches €145 million, and the balance-sheet total is €85 million. The number of employees stands at 300. When also the figures of the group are taken into consideration, A must be treated as a large enterprise. For this reason, if A has conducted business with a foreign related party during the tax year, it is under obligation to prepare transfer pricing documentation.

For further information on transfer pricing and transfer pricing documentation, please visit the following sites:

In case you have questions regarding transfer pricing, please contact us: siirtohinnoittelu(at)vero.fi

Instructions for completing Form 78

1 The taxpayer’s business activities

Activities, box 11 to box 16 on the form

Standard industrial classification does not always describe the business operations with sufficient accuracy.

Tick the boxes that describe the taxpayer’s actual operation. For example, if the company engages in sales, manufacturing and research, tick boxes 11, 12, and 13.

If the company conducts an activity as a service for others, such as manufacturing, tick both 12 (manufacturing) and 14 (service).

It is not necessary to include an explanation of which one of the ticked boxes indicates a primary and a secondary activity.

More information on business activities

Is there a minimum level of profitability set on the taxpayer through arrangements made with a related party?

This means a minimum level set on the taxpayer’s profitability, which the related party acknowledges by paying a compensation to the taxpayer irrespective of the market conditions. The minimum level can be set by any indicator of profitability (such as EBIT or gross margin).

Tick ’Yes’ even if the minimum profitability level only concerns a certain part of the operations, such as sales and marketing, or manufacturing (as relating to a specific product line, etc.).

The minimum level of profitability does not mean a mark-up agreed for a single transaction or service charges for administrative services for instance.

Is the taxpayer party to a cost contribution agreement?

In a cost contribution (or sharing) agreement, the participants share the contributions and risks involved in an endeavour.

These lines are for agreements that coincide with the description found in the OECD Transfer Pricing Guidelines, Chapter VIII (Cost Contribution Arrangements (CCA)). Typically, CCAs are linked to a joint development or production project. An example of a joint project that can qualify for a CCA is the development of ERP system or of new patentable product.

The characteristics of a CCA are the following:

  • the arrangement is made between at least two related parties,
  • each party’s responsibility for the costs is defined by a formula that the parties have agreed on, and
  • each party's share of the costs must reflect its share of the overall expected benefits to be received under the arrangement. 

If the taxpayer only charges the expenses that relate to the group’s shared resources (such as administrative services), it does not mean that the taxpayer would be party to a cost contribution agreement. Accordingly, service agreements concerning group's Management Fee system are not reported here, because these are not considered to be CCAs. An important pre-requisite for CCA is that the participants share the risks: under a CCA the risks are contractually assumed together by the participants, whereas under an intra-group service agreement the service provider bears the risks.

Has the taxpayer transferred any business activities it has previously engaged in (such as income from a certain market sector) to a related party?

If the taxpayerhas done that, tick the box accordingly. What is meant by “activity” is an integrated business unit or certain functions that relate to larger business units.

You should answer “Yes” irrespective of whether the taxpayer has received any compensation for the activity that was transferred away.

Example: The taxpayer offers technical maintenance services of machinery, and sells spare parts, to independent customers. During the tax year, another group company, domiciled in a foreign country, undertakes to start selling the spare parts but the taxpayer still continues to offer the maintenance services for customers. In this case, the taxpayer has transferred an activity to a related party, so the box must be ticked.

Have there been any changes in agreements concerning the taxpayer’s business activities resulting in the realisation of income and relegating risks to another related party (such as the outsourcing of a manufacturing activity)?

If the taxpayer has made changes to these agreements with foreign related parties, tick the box.

Changes in profit expectations and risks do not necessarily manifest themselves in the daily operations of the taxpayer.

Compared with the previous question (transfer of an activity), this refers to a different situation, where an outsider cannot necessarily see any changes in the company’s operations but the company has made a new contractual arrangement that, for example, is effectively an exchange of higher profit expectations against a lower risk level.

Example: The taxpayer manufactures products and sells them to various local sales companies. In the future, under a changed agreement, it will be a tolling manufacturer for a group company. Despite the changed agreement, the taxpayer’s manufacturing activity will be the same as before. However, the business agreements have been changed so that from then on, the other related party will receive all the income and bear the risks.

Compensation paid by related parties to cover research and product development expenses

Total research and product development expenses for the accounting period / Has a related party paid the taxpayer compensation to cover research and product development expenses?

The amount of research and development expenses to be reported is generally the same as the amount shown in the closing of accounts for taxpayer companies that must write up an annual report on their activity and describe the extent of R&D in that report (under Chapter 3, section 1a of the Accounting Act). Companies that conduct R&D must fill in the amount of their R&D expenses on this line even if the law does not require them to give an annual report on their other business activities.

Report the gross expenses and do not deduct any subsidies such as those received from the Business Finland. In addition, if you have transferred any R&D expenses to the balance sheet during your accounting year as capitalized costs, you must include the capitalized expenses in the amount on this line.

In addition, if a foreign related party paid the taxpayer company a compensation in order to cover R&D expenses, you must indicate this.

"Compensation" refers to all R&D compensations received from the foreign related party, such as direct payment of any costs, any covered research-service fees, and a mark-up if applicable.

2 Profitability

Profitability figures are calculated in two sets, separately for the taxpayer, and separately for the group. It is the responsibility of the taxpayer submitting Form 78 to find the figures for the group if they are not known.

Enter the figures with one decimal place.

“Group” means the consolidated group under the ultimate parent company. You must provide the financial figures for the group if a consolidated financial statement has been drawn up  within the meaning of the Accounting Act, or if the foreign parent company has drawn up consolidated financial statement.

Credit and insurance institutions do not fill in lines 17 to 20.

Lines 17–18

Line 17: Calculate the taxpayer’s EBIT margin: divide the taxpayer’s EBIT by its turnover and multiply the result by one hundred.

Line 18: Calculate the consolidated EBIT margin from the data in the consolidated financial statement: divide the group’s EBIT by its turnover and multiply the result by one hundred.

Lines 19–20

Line 19: Calculate the taxpayer’s ROI: divide EBIT by invested capital and multiply the result by one hundred. “Invested capital” means the amount of taxpayer’s equity plus debts at interest, as stated in the taxpayer’s financial statement.

Line 20: Calculate the consolidated ROI from the data in the consolidated financial statement: divide the group’s EBIT by its invested capital and multiply the result by one hundred.

3 Description of associated transactions

Report the transactions with related parties by type of transaction.

When filling in the values, use the gross figures, do not subtract the expenses that relate to the values.

For every line (21 to 48), the taxpayer is expected to fill in the values of the transactions made with foreign related parties, in amounts in euro. If the transaction consists of a transfer of a business activity, report the items transferred on the appropriate lines (21 to 48).

Do not include any billing where an expense is being passed on from one group company to another on lines 21 to 48.

If the transaction with a related party was made in a foreign currency, enter the transaction value as converted into euros as it is stated in the taxpayer’s financial statement.

The amounts to fill in “Profits from derivative contracts” and “Expenses from derivative contracts” are all the revenue and expenditure that are related to any derivatives, including any fees (either paid or received) for setting up the contract – a “start fee” or the like – and similar related payments.

Note: it is important to not include sales-related receivables in 42 (Short-term receivables) because they must only be reported in 43 (Accounts receivable). Correspondingly, accounts payable – relating to company’s purchasing – must only be reported in 46 (Accounts payable).

Enter the amounts that are valid at the balance sheet date on lines 41 to 48.

4 Changes in ownership of intangible property

1 Transfer of patents or patent applications to a related party

2 Transfer of trademarks to a related party

3 Transfer of other intangible property to a related party

Fill in the lines under “4 Changes in ownership of intangible property” only if the taxpayer has transferred intangible property to a foreign related party during the accounting year. This means that you are not expected to report any receipts of intangible property that originates from a foreign related party.

“Related party’s country code” refers to the country code, consisting of two characters, in accordance with the ISO-3166 Alpha 2 system, of the foreign party’s country of tax residence. If the party has no country of tax residence, enter X5 as its country code.

You can enter a company code issued in the foreign country under “Related party’s business ID” as the purpose is to fill in an identity code similar to a Business ID in Finland. If you know the related party’s Tax Identification Number (TIN), you can enter it here. In case the related party does not have TIN, report another identity code, such as the LEI Code or the VAT number used in invoicing within the internal market of the EU.

If several intangible property items (e.g. several patents) have been transferred to one related party, complete only one line. Add up the compensations paid for the items and enter the totals into “Amount of compensation”.

In a situation where intangibles have been transferred to several related parties, and you submit Form 78 on paper, fill in additional copies of page 3 separately for each related party that has received intangible property.

Any transfers of intangibles that were effected with no compensation must also be reported here. In this case, you should enter “0” into “Amount of compensation”.

If intangible property has been transferred as part of a more extensive arrangement, such as the sale of an entire business operation, enter the details regarding the transferred intangibles (e.g. patents). If the value of intangible property in such an arrangement has not been defined (for example, if a lump sum has been agreed), enter “0” into “Amount of compensation”.

Other intangible property items under “3 Transfers of other intangible property to a related party” may consist of customer relationships, software program platforms, technical drawings, unpatented product recipes, know-how and corporate goodwill. Please note that this is not an exhaustive list.

The phrase “other intangible property” is to be interpreted broadly. If there is an item for which you cannot make an exact conclusion of whether it is part of tangibles or intangibles, you can include the value of that item in the “other intangible property” on this line.

5 Debts to related parties

List the three highest amounts of loans received by the taxpayer from related parties (i.e. the loans that have the highest principal balances at the balance sheet date). In addition, if the taxpayer owes money at year end to the multinational enterprise group’s shared “intercompany” account, you must report the negative balance here. However, only the loans with interest expenses of at least €500,000 during the tax year are reportable.

“Interest expenses” means the gross interest expenses.

If you leave any of the three columns blank, the value of the column entry is treated as 0.

“Debts to related parties” does not mean accounts payable, relating to the taxpayer’s purchases.

6 Receivables from related parties

List the three highest amounts of loans granted by the taxpayer to related parties (i.e. the loan receivables that have the highest principal balances at the balance sheet date). If the multinational enterprise group has an “intercompany” account where the taxpayer’s balance is positive at the end of the year, you must report that balance here. However, you should only include the loan receivables with principals over €10 million at the balance sheet date.

“Interest income” means gross interest income.

If you leave any column blank that is not a column for Country Codes, the value of the column entry is treated as 0.

Please note that “Receivables from related parties” do not refer to the accounts receivable that relates to company's sales.