78 Explanation of Transfer Prices, How to fill out the form

This form is designed for taxpayers who are required  to deliver transfer pricing documentation to the tax office as provided in § 14 a, Act on Assessment Procedure.  It is not designed for informing the tax office on the current methods that the taxpayer applies to transfer pricing.

Taxpayers must prepare their transfer pricing documentation to cover the transactions made with associated enterprises as defined in § 31, Act on Assessment Procedure.

  • The parties that have entered into business transactions with one another are regarded as associated if one of them is controlled by the other party , or if a third party, either individually or jointly with the third party’s partners, affiliates or associates, is controlling  both parties to the business transactions.
  • Associated transactions refers not only to the transactions the taxpayer has made with its parent company or subsidiary directly but it also means the transactions the taxpayer has made with companies or entities belonging to the same consolidated group as the taxpayer
  • The documentation must include the transactions made between a foreign company and it’s  permanent establishment located in Finland.

Outline of the documentation requirement

You must submit documentation if at least one of the following criteria applies:

  • Your company has 250 or more employees; or
  • Its net sales reaches €50 million and its balance-sheet total is €43 million or more; or
  • It cannot be regarded as a 'Small or medium-sized enterprise, SME' as referred to in the Recommendation no 2003/361/EC of the EU Commission.

You must use the consolidated annual accounts of the ultimate parent company of your entire group of companies when the above criteria on net sales, balance sheet and number of employees are considered in reference to the Recommendation no 2003/361/EC of the Commission. For this reason, the documentation requirement may concern you if your company is e.g. the Finnish subsidiary of a multinational enterprise although it is an SME.

The Commission has referred to 'Linked enterprises' which essentially are the same as 'companies belonging to the same consolidated group'. When 'Linked enterprises' are included in your reporting you must add their figures for the net sales, balance-sheet total and number of employees to the figures that concern your own company.

The Recommendation of the Commission discusses the need to add the data of possible partner enterprises to the consolidated account data, if your company owns 25–50% of the shares or has a control of 25-50 %.

When partner enterprises are included in your reporting you must add pro-rata shares of their figures for the net sales, balance-sheet total and number of employees to the figures that concern your own company, using your ownership percentages as the rule for the pro rata.

Example: A Oy is a wholly owned subsidiary of X Ltd. There are 100 people working for A Oy, it has €45 million in net sales and a balance-sheet total of €35 million. The parent X Ltd has 200 employees, €100 million of net sales and its balance-sheet total equals €50 million. When added together, the net sales of A Oy and X Ltd reach €145 million and the balance sheet — €85 million. The number of employees stands at 300. Conclusion: when you examine the consolidated annual accounts of this entire group of companies you must treat A Oy as a large company that must submit the required documentation on its transfer pricing.

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1 Taxpayer's business category

  • Standard industrial classification does not always describe accurately enough the business operations performed.  Tick the boxes as appropriate. Example: if the taxpayer is a company with sales, manufacturing and research operations, you should indicate 11, 12 and 13.

2 Information on profitability

  • You must work out separate profitability ratios showing the taxpayer's data and consolidated data. It is the filer-taxpayer's responsibility to request the consolidated data from the parent company if this is not readily available.
  • Use one-decimal accuracy.
  • The word consolidated means the entire group of companies where the ultimate parent company is the highest level. You are required to include the consolidated data if consolidated financial statements have been drawn within the meaning of Accounting Act, or if the parent company is foreign and the consolidated financial statements have been prepared.

Lines 17 - 18

Lines 17–20 of Form 78 do not concern credit institutions and insurance companies.

  • Line 17: EBIT margin is: EBIT divided by Net Sales × 100.
  • Line 18: Consolidated EBIT margin is: Consolidated EBIT divided
    by Consolidated Net Sales × 100.

Lines 19 - 20

  • Line 19: ROI (EBIT divided by Invested Capital) × 100.
    Note: For the purposes of this calculation, invested capital means the sum of equity plus interest-bearing debt.
  • Line 20: Consolidated ROI: (Consolidated EBIT divided by
    Consolidated Invested Capital) × 100.

3 Description of associated transactions

  • Fill in the lines separately for each type of transaction.
  • Go over each line (21–32)  and fill in the euro amounts as appropriate, covering all the associated transactions. Example: An entire business area was sold inside the group. You must report the various parts of this business area in the appropriate lines 21 – 32 in appropriate portions.