Obligation to compile a transfer pricing documentation

This guidance will be updated.

The prerequisites for the documentation obligation vary country by country. Therefore, a company may be obliged to document its transfer pricing under the legislation of another country even if the Finnish legislation would not require it. A company must examine the transfer pricing documentation obligations country by country. In this connection, the documentation obligation is addressed only from the Finnish perspective.

Companies obliged to document their transfer pricing

Provisions on the documentation obligation are contained in section 14 a of the Act on Assessment Procedure. A company liable to pay tax in Finland must compile a transfer pricing documentation on the transactions it has carried out with a foreign related party during the tax year. The documentation obligation also applies to the dealings between a foreign company and its permanent establishment in Finland. The documentation obligation applies to large companies that meet at least one of the following conditions:

• The company employs at least 250 people.
• The company's turnover is more than EUR 50 million and its balance sheet total more than EUR 43 million.
• The company is not a small or medium-sized enterprise, as defined in the Commission recommendation 2003/361/EC.

On the grounds of the Commission recommendation, when the number of employees, the turnover and the balance sheet total are assessed, the group level key ratios must be considered. In practice, this means that the consolidated turnover and the balance sheet total of the ultimate parent company and the number of employees in the whole group must be considered. Thus, the documentation obligation often applies also to fairly small companies operating in Finland if they are part of a large international group.

The number of employees, turnover and the balance sheet total are calculated based on the figures of the most recent balance sheet. The turnover is exclusive of value added tax and other indirect taxes.

Start and end date of the documentation obligation

A company will be liable to compile a transfer pricing documentation if the threshold for the number of employees or turnover and the balance sheet total is exceeded on the balance sheet date in two consecutive financial years. The documentation obligation only applies to the latter year.

The documentation obligation ceases if the number of employees or turnover and the balance sheet total remain below the thresholds in two consecutive financial years. The documentation must, however, be compiled for the first year, for which the figures remain under the threshold.

The documentation must be presented to the tax authorities at their request

Provisions on the presentation of the documentation and additional supplementing information are contained in section 14 c of the Act on Assessment Procedure. A company with a documentation obligation must present its transfer pricing documentation within 60 days of the tax authority's request. However, the transfer pricing documentation for a particular tax year shall not be requested earlier than six months from the end of the month in which the financial year ends. A company must submit the additional information supplementing the transfer pricing documentation within 90 days of the tax authority's request. The tax authority may extend the deadlines on request.

The documentation should not be attached to the tax return. The transfer pricing documentation must be compiled for each tax year and it can be in Finnish, Swedish or English.

Sanctions for non-compliance

A punitive tax increase of a maximum of EUR 25,000 may be imposed on a company with a documentation obligation if the company has not presented its transfer pricing documentation or the additional information supplementing it in the set period of time. The punitive tax increase may also be imposed if there are essential inadequacies or errors in the transfer pricing documentation supplied by the company with a documentation obligation.

The arm's length principle applies also to small and medium-sized enterprises

The arm's length principle applies to all related party transactions, irrespective of the size of the company. This means that the arm's length principle applies even if the company is not obliged to document its transfer pricing. Therefore, a company must submit the necessary explanation of related party transactions if requested by the tax authority in order for assessing whether the transactions are at arm's length. This means that also the small companies should continuously monitor that their related party transactions are in accordance with the arm's length principle.