Compliance Costs of Transfer Pricing in Case of SMEs: Czech Case

Abstract

Small and medium sized enterprises account for over 99% of all companies in European Union and have very important position in the EU economy in the area of growth and employment. However, they face great deal of obstacles, such as compliance costs of taxation, 28 different tax systems in Europe, difficult transfer pricing rules and so on. Further, compliance costs of taxation are regressive with regard to firm size and significantly higher in case of enterprises with foreign branch or subsidiary in comparison with enterprises which are not internationalized. Moreover, compliance costs are increasing through strict and difficult transfer pricing rules among European countries. Therefore, taxes and new obligations should be carefully designed so that they can address the disproportionately high tax compliance burdens faced by those enterprises. Unfortunately, there does not exist a study determining compliance costs of transfer pricing issue in the literature. Therefore, the aim of paper is to determine compliance costs of transfer pricing issues in case of SMEs. The results are based on the questionnaire distributed among Czech parent companies having subsidiaries in Europe and Czech subsidiaries having a parent company in Europe. Based on the results we can conclude that costs for managing of transfer pricing requirements can reach from EUR 6,430 to 7,704 per year, time needed for this issue between 27 and 35 working days and in case of comparison with corporate tax collection it represents between 3.90 % and 12.74 %.

Analytical Review of Tax Compliance Studies in the SMEs Sector: A Bibliometric Approach

“…Emerging or declining themes show topics that are on the rise or decline in the field of tax and SMEs research. One of the topics in this category is tax compliance costs, small and medium enterprises, and developing countries [23].…”

Transfer Pricing in V4 Countries

“…She further adds that the lack of uniform benchmarking legislation can cause inconsistencies in the selection of comparable data, resulting in differences in transfer pricing. Nerudová et al (2017) state that the arm's length principle application is based on comparability and functional analysis, which is very time consuming, places high demand on the financial and human resources of a company and for SMEs often very complex and onerous.…”

“…Taxpayers must comply with the terms and/or terms are still valid through the annual report presented by taxpayer during period determined by agreement with the financial administration. Solilová et al (2017) find that compliance costs are increasing through strict and difficult transfer pricing rules among European countries. They suggest that taxes and new obligations should be carefully designed so that they can address the disproportionately high tax compliance burdens faced by those enterprises.…”

“…The result of the BEPS project for Poland was, among others, introduction in 2017 of the obligation to include comparative analysis or compliance analysis results in transfer pricing documentation. Thus, taxpayers in Poland faced such challenges as: access to databases, selection of a comparative sample and comparative parameter, the possibility of using foreign benchmarks and other problems of comparability analysis described in the literature Nerudová et al, 2017;Sulik-Górecka, 2018).…”