Transfer pricing documentation and the payment of dividends

The lack of obligation to prepare transfer pricing documentation

On 22 August 2020 The Ministry of Finance presented a reply to a parliamentary interpellation concerning no need to document the payment of dividends to a related entity. In the reply it was emphasised that in accordance with Article 23m of the PIT Act and Article 11a of the CIT Act, the transfer pricing documentation obligation (the so-called local transfer pricing documentation) applies to controlled transactions. It follows from the interpellation that dividend payment is not a controlled transaction and thus is not subject to the transfer pricing documentation obligation.

A controlled transaction is an economic activity involving the allocation of the income of a foreign company under terms and conditions set or imposed by capital links. However, the payment of dividends to related entities does not constitute an economic activity (profit-making activities) and therefore does not fall within the above definition, although there are links and there is a direct link with the functioning of capital groups.

The published statement of the Minister of Finance dispels the existing doubts concerning capital groups to their advantage by stating that there is no obligation to prepare (local) transfer pricing documentation with respect to dividend payment.