Transfer pricing

Transfer pricing means pricing transactions between companies belonging to the same group ("related parties"). When transfer pricing is analysed from the perspective of taxation, all transactions between related parties such as those involving goods and services, compensation for the use of intangibles and financing are included.

Information for companies entering the international markets

The information on these pages is targeted mainly for the Finnish companies entering the international markets and which do not have substantial experience with transfer pricing related matters. The aim is to help the companies with identifying the transfer pricing concerns that they should consider in their own operations. However, evaluation of the transfer pricing matters is always closely connected with the company's business operations and the case-by-case circumstances.

Transfer pricing must be at arm's length

All group companies are part of the same entirety and therefore the terms and conditions of intra-group transactions are not usually determined by normal market behaviour. The prices and other terms and conditions of the transactions are often set on a centralised basis. However, the terms and conditions of the intra-group transactions must be at arm's length. This means that the intra-group transactions shall be based on the same pricing and other terms and conditions that would be used in transactions between independent enterprises in similar circumstances. The purpose of the arm's length principle is to ensure that the income is accumulated and the taxes are paid in the right country.

The arm's length principle applies also to the dealings between a company and its permanent establishment. This means that, as a rule, all the guidelines by the Finnish Tax Administration concerning transfer pricing apply to intra-group transactions as well as to dealings between companies and their permanent establishments.

Group companies are not required to determine the prices of intra-group transactions with same method that is used for assessing adherence to the arm's length principle for taxation purposes. However, for taxation purposes companies must apply acceptable methods in order to show that the intra-group prices correspond to the prices and other terms and conditions applied in transactions between independent enterprises. There are number of different methods for verifying that transfer pricing is at arm's length. The different methods are described in the transfer pricing guidelines of the OECD. The OECD guidelines are internationally accepted and an important source of interpretation when the arm's length principle is applied.

OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (www.oecd.org)

In taxation group companies are assessed based on the separate entity approach 

The arm's length principle is based on the separate entity approach. Under the approach, group companies are considered as independent companies for taxation purposes.

You can contact the Finnish Tax Administration in transfer pricing matters

It is recommendable for companies to contact the Finnish Tax Administration whenever there are new transfer pricing matters in which the company needs assistance. You can send your requests for contact and questions to our e-mail address siirtohinnoittelu(at)vero.fi. Please note that this e-mail connection is not encrypted. In order to use an encrypted connection, send us an e-mail before sending any confidential information. The answers to the questions concerning transfer pricing are provided by the Transfer Pricing Unit of the Finnish Tax Administration's Large Taxpayers’ Office.