Slovakia’s transfer pricing laws align with the Guidelines set by the Organization for Economic Co-operation and Development (OECD). They are incorporated within the Income Tax Act.
Arm’s Length Principle
If the prices or terms agreed between related parties, particularly in cross-border transactions, differ from market conditions and lead to a reduction in the taxable income of a Slovak entity, the entity is required to adjust its tax base accordingly. This is a direct application of the arm’s length principle. Additionally, since 2017, Slovak rules also cover situations where the terms or conditions of controlled transactions differ from those that would be agreed between independent parties, further reinforcing the principle’s application.
Related Party Definition
Related parties under Slovak tax law are:
- Close people (like family members),
- People or companies with economic, personal, or other connections (such as owning at least 25% of shares, voting rights, or profits, or being under the same control or management),
- Members of the same financial group (used for accounting consolidation),
- Or those who have ties mainly to lower taxes (through legal or business setups just to reduce the tax base).
Also, Slovak and foreign companies or people are considered related if such ties exist, including relationships between a company and its foreign branches.
Transfer Pricing Methods
The methods that can be used to determine the arm’s length price in Slovakia are:
- Comparable Uncontrolled Price Method
- Resale Price Method
- Cost Plus Method
- Transactional Net Margin Method
- Profit Split Method
Slovakia follows the most appropriate method rule, not a strict order, and uses OECD guidelines, including for commodities.
Comparability Analysis
Comparability adjustments are required by Slovak legislation. This means that if there are differences in the terms of transactions between related parties compared to independent ones, adjustments must be made to ensure fairness, in line with the arm’s length principle. It follows the guidance on comparability analysis in Chapter III of the OECD Transfer Pricing Guidelines (TPG), but it’s not legally binding, just used as a helpful guide. For comparables, Slovakia prefers to use domestic comparables first and only uses foreign comparables if necessary. The tax administration does not use secret comparables. Slovak law does not directly require the use of an arm’s length range or statistical measures for pricing but follows the TPG guidelines.
Documentation Requirements
Documentation requirements for transfer prices in Slovakia are based on the three-layer method of the OECD. That means multinationals have to report the following to the Slovak tax authorities:
- Master file;
- Local file; and
- Country-by-Country (CbC) report.
If a company is required to prepare financial statements and engage in related-party transactions (both domestic and foreign), the transfer pricing documentation will consist of the following:
Master File: This contains general information about the entire multinational group (business operations, organizational structure, intangibles, and financial activities). It is shared across all countries where the group operates.
Local File: This includes detailed information about the Slovak entity and its specific transactions with related parties. It focuses on the regional operations, contracts, pricing methods, and relevant financial data.
Depending on the size and nature of the transactions, Slovakia distinguishes between three levels of documentation: shortened, basic, and full. The master file and local file are required only under basic and full documentation.
Country-by-Country Reporting
Slovakia requires Country-by-Country (CbC) reporting from multinational groups with global revenue of over 750 million euros. The parent company must file the CbC report with tax authorities within 12 months of the fiscal year-end.
If the parent is outside the EU and doesn’t report properly, then an EU group company may need to file instead, unless another group company (a surrogate parent) files it on the group’s behalf. The CbC report shows key financial info for each country where the group operates (like revenue, tax, and employees). Slovakia shares this info with other EU countries automatically.
Advance Pricing Agreements (APA) and Mutual Agreement Program (MAP)
Advance Pricing Agreements – Slovakia has some available options for resolving transfer pricing disputes, such as Advance Pricing Agreements (APA), which can be unilateral, bilateral, or multilateral. A taxpayer can ask the tax office to approve a pricing method in advance. This can be done either for Slovak rules (unilateral APA) or based on tax treaties with other countries (bilateral/multilateral APA), including for past years (rollback). The fee is €10,000 for a unilateral APA and €30,000 for an APA based on a tax treaty. The APA can be issued for a maximum of five tax periods; but if requested by the taxpayer it can be extended for another additional five tax periods, accounting for a total of 10 tax periods.
Mutual Agreement Program – The Mutual Agreement Procedure is available in Slovakia for resolving disputes arising under tax treaties, including those related to transfer pricing, treaty and domestic anti-abuse provisions, and double taxation. Taxpayers may request MAP assistance even if the issue is under domestic judicial or administrative review, although final court decisions are binding on the Ministry. The MAP request must generally be submitted within two or three years from the first notification of the taxation issue, depending on the applicable treaty. While tax collection is not automatically suspended during a MAP case, a suspension may be granted upon request.
Approach to Transfer Pricing Audits
In Slovakia, if a company doesn’t prepare a benchmark analysis to prove that prices with related parties are at market value (arm’s length), the tax authority will do its analysis during a tax audit and may adjust the price. The company will then be taxed on the difference. Common audit targets include low-profit or loss-making companies, mismatched functions, profits, and services, royalties, or loans between group companies. Transactions with foreign-related parties can be audited for up to 10 years and those with Slovak-related parties for up to 5 years. If tax is avoided through transfer pricing, a 20% yearly penalty can be applied.
Penalties
If prices are improperly set, the tax authorities may reject the overstated expenses, leading to additional income tax and a penalty. Since January 1, 2017, the penalty rate is 20%, but it is reduced to 10% if the taxpayer does not dispute the decision. Before that date, the penalty was 10%.
Taxation at a Glance
In Slovakia, taxes are mostly managed by the state tax or customs authorities, while local (municipal) taxes are handled by municipalities.
The currency of Slovakia is the Euro (EUR). The official name of the Slovakia tax authority is the Financial Administration Slovak Republic
The table below provides a summary of the main taxation rates related to businesses:
Tax Type | Tax Rate |
Corporate Tax | 10% – 24% |
VAT | 23% |
Withholding tax on dividends to non-residents | 35% |
Withholding tax on interest to non-residents | 19%/35% |
Withholding tax on royalties to non-residents | 19%/35% |
Our firm provides our clients with comprehensive assistance in their transfer pricing needs globally. To contact a team member, please click here.
