Abstract
This segment of the book contains an analysis of compliance costs of taxation with respect to SMEs and transfer pricing issues as well as critiques of current approaches. The last part of the chapter includes a case study on the determination of compliance costs of transfer pricing with respect to SMEs in the Czech Republic, the Slovak Republic and Poland, which represent countries from the Visegrad Group, and the European Union, as based on the results of our questionnaire. To determine the compliance costs of transfer pricing, cost and time approaches were used.
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Notes
- 1.
Based on the definition of the European Commission, Recommendation 2003/361/EC.
- 2.
The reason for the selection of those countries is that those countries belong to Visegrad group (Hungary is omitted as micro and small enterprises are excluded from the obligation to prepare transfer pricing documentation in that country, and no data available for that country). Moreover, those countries cover the highest amount of respondents from the research.
- 3.
Controlled foreign company (CFC) rule, switchover rule, exit taxation, interest limitation, general anti-abuse rule.
- 4.
Member States should apply these measures as from 1 January 2019.
- 5.
The arm’s length principle was implemented in the U.S-France treaty of 1932 for the first time.
- 6.
London Model Tax Convention (1946) was used as the predecessor to the OECD draft model convention in 1963.
- 7.
The Council of the EU approved the Code of Conduct on the EU TPD on 6 June 2006. The EU TPD consists of the Masterfile providing a uniform and standardized information relevant for all corporate group members; and a country-specific documentation providing all information that is relevant only in a specific EU Member State.
- 8.
The questionnaire contains 33 questions covering general transfer pricing issues, compliance costs of transfer pricing and tools for decreasing of those compliance costs.
- 9.
A—Agriculture, forestry and fishing, B—Mining and quarrying, C—Manufacturing, D—Electricity, gas, steam and air conditioning supply, E—Water supply; sewerage; waste management and remediation activities, F—Construction, G—Wholesale and retail trade; repair of motor vehicles and motorcycles, H—Transporting and storage, I—Accommodation and food service activities, J—Information and communication, K—Financial and insurance activities, L—Real estate activities, M—Professional, scientific and technical activities, N—Administrative and support service activities, O—Public administration and defence; compulsory social security, P—Education, Q—Human health and social work activities, R—Arts, entertainment and recreation, S—Other services activities.
- 10.
For example spread set in questionnaire is EUR 1001–2000, medium value is 1500 which is further multiplied by the number of answers for that spread of costs according to Eq. (4.1).
- 11.
For example spread set in questionnaire is EUR 1001–2000, the highest values is 2000 which is further multiplied by the number of answers for that spread of costs according to Eq. (4.1).
- 12.
For example spread set in questionnaire is EUR 1001–2000, the lowest values is 1001 which is further multiplied by the number of answers for that spread of costs according to Eq. (4.1).
- 13.
It is determined according to the median and the highest values of individual spread of time set in questionnaire.
- 14.
See note 8.
- 15.
For example spread set in questionnaire is EUR 1001–2000, medium value is 1500 which is further multiplied by the number of answers for that spread of costs according to Eq. (4.2).
- 16.
For example spread set in questionnaire is EUR 1001–2000, the highest values is 2000 which is further multiplied by the number of answers for that spread of costs according to Eq. (4.2).
- 17.
For example spread set in questionnaire is EUR 1001–2000, the lowest values is 1001 which is further multiplied by the number of answers for that spread of costs according to Eq. (4.2).
- 18.
Main national accounts tax aggregates [gov_10a_taxag]—taxes on the income or profits of corporations including holding gains.
- 19.
The rest of the respondents’ answers from the Czech Republic, Slovak Republic and Poland. For results, see the previous chapter.
- 20.
Safe harbour is determined usually as a range of arm’s length rate, which is accepted by tax administrators. Then, taxpayers may not incur costs and time for the determination of arm’s length rate/margin resulting in lower compliance costs of taxation. For more details about safe harbour, see the following Chap. 5 and Solilova and Nerudova (2016) “The Proposal of Safe Harbours in the Area of Transfer Prices for Small and Medium Sized Enterprises”, Politická Ekonomie, vol. 64, no. 5, p. 559–572. DOI: 10.18267/j.polek.1075.
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Acknowledgement
The chapter is the result of the GA ČR no. 15-24867S “Small and medium size enterprises in global competition: Development of specific transfer pricing methodology reflecting their specificities”.
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Solilova, V., Nerudova, D. (2018). Compliance Costs of Transfer Pricing for SMEs. In: Transfer Pricing in SMEs. Contributions to Management Science. Springer, Cham. https://doi.org/10.1007/978-3-319-69065-0_4
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