Relocations and transfers within the Group and transfer pricing

Recently on the Slovak market, we have observed an increase in the number of transfers of tangible and intangible assets, activities without the relocation of staff, relocation of part of production, downscaling of production, or company wind-ups between affiliates of the same (local or multinational) group.

In addition to business, accounting, and tax-related impacts of these transfers, many taxpayers are not considering the transfer pricing aspects of such a transfer (i.e. the price that independent parties would pay for a comparable transfer).

Despite the fact that within groups, such transfers often only take place based on an instruction from the headquarters and without a transfer agreement the transfer should still be properly remunerated. In the event of a tax audit, the missing market remuneration for the transfer may be of great interest to the tax administrator even after five or 10 (in case of cross border transfers) years.

Below we thus list situations between affiliates in which, from a transfer pricing perspective, there is usually a need for transfer pricing consideration in excess of the remuneration for transfers of accounting items, e.g. a consideration for transferred profit potential or assumption of loss potential, consideration for internally developed intangible assets that are not accounted for, or compensation of cost related to the transfer itself.

1. Transfer of functions and risks between affiliates

• Transfer of production (or a smaller part thereof) from/to Slovakia without staff relocation;
• Change (limitation or extension) of decision-making competencies of your company;
  
• Transfer of activities (purchase, logistics, R&D, business activities, marketing, services, analytics) from/to Slovakia without staff relocation;
  
• Centralization of activities to a regional or global service centre (e.g. establishing management, competency, or service centre);
  
• Change to your group’s value chain due to changes to group policies related to sustainability and environmental legislation (e.g. CBAM, CSRD);
  
• Permanent staff / team relocation and the related competencies from/to Slovakia.
  

2. Transfer of intangible assets between affiliates

• e.g. customer/supplier portfolio/list, project documentation, patent, production patterns, software, know-how

3. Wind-up of your company

4. Full or partial downscaling of your activities in Slovakia

The analysis of a transaction from the transfer pricing point of view should also be followed by a legal, accounting, tax analysis (corporate income tax and VAT) to correctly delineate the transfer for the respective taxes and ensure tax deductibility / possibility to deduct VAT at the affiliate who is the transferee. Contact us with any of the above situations to make use of our thorough experience and ensure avoidance of risks by proper implementation of the transfer.