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Estonia Spells Out Transfer Pricing Requirements

8th March 2022

Estonia’s new transfer pricing regulations, which took effect on January 1, are hardly surprising—they follow OECD guidelines to a T. Still, given that the tax authorities went to the trouble of updating the new regulations to list the specific details they want to see from taxpayers, multinational companies would be wise to take the hint. Taking cues from the OECD, Estonia’s new regs include a master file, a local file, and a country-by-country report. The master file must include an annual report on the whole group, as well as information about the group’s supply chain. Tax authorities want to see information on the group’s largest products and services, financial arrangements, and of course, detailed information about the group’s intangible assets. Local files must be prepared with care, too. In fact, they must include copies of contracts outlining the controlled transactions, as well as a local entity’s annual report. And here’s some not-so-great news: While in the past, taxpayers could base arm’s-length transfer prices on a full range of results, now arm’s-length results are limited to the interquartile range. On the other hand, companies with low-value-added intragroup service transactions catch a break: Low-value-added services can be considered arm’s length with a straightforward 5% profit margin—no comparable data is necessary. Like we said, Estonia isn’t exactly full of surprises, but when you consider the efforts put forth here by local tax authorities, it’s easy to see that transfer pricing compliance is high on the priority list.