Year-End Transfer Pricing: Why It's Not Enough to Prepare Documentation Only After the Fiscal Year-End
Transfer pricing is often addressed by companies only when preparing their tax returns or the transfer pricing documentation itself. For international groups, however, this may be too late.
If a Slovak company is to operate, for example, as a distributor, manufacturer, or service provider with a specific target profitability, we need to know before the end of the fiscal year whether its actual results align with the established transfer pricing model. If not, a year-end adjustment to transfer prices may be necessary.
This year has shown that transfer pricing remains one of the priority areas for tax audits. In the first half of 2026, the Office for Selected Economic Entities completed sixteen corporate income tax audits focused on transfer pricing. As many as fifteen of these resulted in findings, and the total amount of the findings exceeded 57.4 million euros, with the transfer pricing findings alone accounting for more than 52 million euros..
So why would we recommend conducting a transfer pricing review before the end of the year?
The Documentation Explains the Result, but It Does Not Replace Properly Set Prices.
The fundamental principle of transfer pricing is that the prices and terms of transactions between related parties should correspond to the terms that independent parties would agree upon under comparable circumstances. Transfer pricing documentation is then intended to explain and support the manner in which these prices were set. However, if we discover after the end of the year that a Slovak company has achieved a result that does not correspond to its functional and risk profile or the group’s transfer pricing policy, simply preparing high-quality documentation will not solve this problem.
Therefore, we recommend distinguishing between two activities:: - transfer pricing compliance
- active transfer pricing management throughout the year.
Check Profitability Before the Fiscal Year-End
Let’s imagine a Slovak company that provides routine support services to its parent company and, according to the group’s transfer pricing policy, is supposed to receive compensation calculated using the cost-plus method. However, during the year, unplanned costs may arise, the volume of services may change, or the invoicing amount may be set incorrectly. This can cause a deviation from the expected final margin. A similar situation can arise at a distribution or manufacturing company. If we identify a deviation in November or December, we still have time to analyze its cause and assess a potential adjustment to transfer prices. If we identify it several months after the fiscal year-end, the options for resolution may be significantly more complicated.
A Year-End Adjustment Is Not Just About Issuing an Invoice
When adjusting transfer prices at year-end, we should not automatically rely on the simple equation “target margin – actual margin = invoice amount.” First, we need to understand the reason for the variance. If a Slovak company achieved lower profitability due to extraordinary costs, market changes, unused production capacity, or other economic circumstances, it is necessary to assess who, according to a functional and risk analysis, should bear these costs or risks economically. Only then can we determine whether a transfer pricing adjustment is justified and, if so, by how much. At the same time, it is necessary to review its accounting, tax, and VAT implications, as well as the accuracy of invoicing between the individual companies within the group..
Management Fees and Intra-Group Services Also Deserve Attention
Another significant area involves services received from a parent company or another group company. IT services, HR, finance, marketing, legal support, and various management fees are typically part of the operations of international groups. From a tax audit perspective, however, the invoice alone may not be sufficient. The company should be able to demonstrate what services it actually received, why it needed them for its business activities, what economic benefit they provided, and how their price was determined. It is also advisable to have documentation supporting the allocation keys used and to be able to demonstrate that these services do not duplicate those provided locally or consist of activities performed solely in the interest of a shareholder. It is significantly easier to prepare such an analysis when we have access to the relevant personnel, data, and evidence of services provided throughout the year.
New Requirements Highlight the Importance of High-Quality Data
In transfer pricing, the importance of information reported directly in the tax return is also growing. The current rules governing the content of transfer pricing documentation are linked to more detailed reporting of significant controlled transactions in the corporate income tax return. A distinction continues to be made between full, basic, and abbreviated documentation. In practice, this means that data on controlled transactions should already be properly identified and categorized during the preparation of the financial statements. We should not wait to analyze them until we are preparing the tax return or until the tax authority requests the company to submit documentation.
The Financial Administration Is Making Increasingly Intensive Use of Data
The method by which the tax administration selects companies for audit is also important. In 2026, the tax administration stated that, when selecting entities, it uses analytical systems and data models that process, among other things, data from tax returns, audit reports, summary reports, and the cross-border automatic exchange of information. Therefore, when it comes to transfer pricing, we recommend taking a comprehensive view of the data. Financial results, tax returns, transfer pricing documentation, reported controlled transactions, and information available within the group should be consistent.
The transfer pricing review should come before the documentation
We consider high-quality transfer pricing documentation to be an important part of complying with tax obligations. However, it is even more important that the documentation reflects properly structured and economically justifiable transactions. Therefore, we recommend not waiting until tax filing season. Transfer pricing should ideally be reviewed during the final months of the fiscal year, when we already have sufficient data to estimate the full-year results and can still address any identified discrepancies.
Current audit findings also show that transfer pricing remains a significant area of risk. For international groups, therefore, the year-end review of transfer pricing should not be merely an administrative obligation, but a natural part of tax planning and the financial closing process.
If you would like to review your transfer pricing arrangements, the profitability of your Slovak subsidiary, or the need for a year-end adjustment before the end of the year, please contact us.
We’ll be happy to review your intra-group transactions with you, identify potential risks, and help you determine the next steps so that your transfer pricing policy, actual results, and documentation form a consistent whole.
