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13.4.3. Documentation Requirements

Disclosure Requirements

Taxpayers are required to file an annual report including a description of transactions with related parties. The annual report is required to be filed within 6 months from the end of the relevant financial year.

Taxpayers are also required to disclose their intra-group loans and similar financing instruments on a quarterly basis.

Standard Documentation

Documentation requirements in Estonian transfer pricing regulations were introduced from 1 January 2007. The documentation requirements should generally follow the principles stipulated in the EU Code of Conduct on Transfer Pricing Documentation for Associated Enterprises in the EU. The transfer pricing documentation requirements are imposed on the following persons and situations:

  • Resident credit institutions, insurance companies, and companies quoted on the stock market;
  • Transactions with related parties resident in low-tax jurisdictions (see Sec. 13.5.);
  • Resident companies and non-resident persons operating in Estonia through a permanent establishment which, when considered with related persons, meet at least one of the following conditions:
    • they hire at least 250 employees,
    • their turnover in the financial year preceding the transaction was at least EUR 50 million, or
    • their consolidated balance sheet total is at least EUR 43 million.

For other taxpayers, documentation requirements are optional.

The TP document must be filed within 60 days of request by the tax authorities.

The documentation is mainly based on the OECD guidelines, which includes the following:

  • Local file referring specifically to material and controlled transactions of the local taxpayer;
  • Master file containing standardized information relevant for all the members of a Multinational Enterprise (‘MNE’) Group; and
  • Country-by-Country (CbC) report containing certain information relating to the global allocation of the multinational group’s income and taxes paid together with certain indicators of the location of economic activity within the group (see below).

The master file and country-specific files, including supporting documentation, should be prepared by the taxpayer with due diligence considering the nature and extent of the controlled transactions.

Master File

The master file should contain:

  • A business profile of the group;
  • The group's consolidated annual report including information on the supply chain of its largest products and services, the capacity to provide the services, and financial arrangements.  
  • A list of related parties with business profile descriptions;
  • Details of controlled transactions;
  • Functional analysis of the group;
  • A list of intellectual property and other intangibles owned by the group;
  • A description of the transfer pricing policy and a list of any applicable cost contribution; and
  • Advance pricing agreements.

Local File

The Local file is the transfer pricing documentation prepared in accordance with the regulations issued by the tax authority and includes the structure and functional profile of the local entity, details of the controlled transactions including copies of contracts, the local entity’s annual report, selection of the most appropriate transfer pricing method and the determination of the arm’s length price.

Country-by-Country (CbC) Reporting

Country-by-Country (CbC) reporting requirements apply to ultimate parent entities resident in Estonia for the fiscal year beginning on or after 1 January 2016. The CbC reporting requirements apply to MNEs with annual consolidated group revenue equal to or exceeding EUR 750 million in the previous year.

The primary reporting obligation falls on the ultimate parent entity of the group (UPE) if resident in Estonia. Effective 1 January 2017, under a secondary filing obligation, constituent (non-UPE) entities are required to file locally in Estonia if:

  • The UPE is not resident in Estonia and is not obligated to file a CbC report in its jurisdiction of residence;
  • The UPE’s jurisdiction of residence has a current international agreement with Estonia but does not have a qualifying competent authority agreement in effect with Estonia by the time the CbC report is due; or
  • An agreement is in place, but there has been a systemic failure for spontaneous exchange of CbC reports with the UPE’s jurisdiction of residence, and the failure has been notified by the Estonian tax authority to the constituent entity resident in Estonia.

Where there are more than one Estonian constituent entities of the same MNE Group and one or more of the conditions set out above apply, the MNE Group may designate one of such constituent entities to file the CbC report and notify the Estonian tax authority that the filing is done on behalf of all the constituent entities in Estonia. Such notification is required to be filed by group entities resident in Estonia within 6 months following the close of the fiscal year.

Further, an Estonian constituent entity may be exempted from the requirement to file a CbC Report locally in Estonia, if the MNE Group has made available a CbC report with respect to the relevant fiscal year through a surrogate parent entity (SPE) (i.e., a constituent entity appointed as a sole substitute for the ultimate parent company to file the CbC report). The SPE must file the CbC report with the tax authority of its jurisdiction of tax residence no later than 12 months after the last day of the reporting fiscal year of the MNE Group. The following conditions are required to be satisfied:

  • The jurisdiction of tax residence of the SPE requires the filing of CbC Reports conforming to the requirements mentioned in the Estonian tax regulations;
  • The jurisdiction of tax residence of the SPE has a Qualifying Competent Authority Agreement in effect to which Estonian is a party on or before 12 months after the last day of the reporting fiscal year of the MNE Group;
  • The jurisdiction of tax residence of the SPE has not notified the Estonian tax authority of a systemic failure;
  • The SPE has notified in its jurisdiction of tax residence that it is designated as the SPE on behalf of the MNE Group; and
  • A notification has been provided by the Estonian constituent entity to the Estonian tax authority providing details of the SPE.

Where the CbC report is required to be filed locally in Estonia, the contents of the CbC report include the following for each jurisdiction:

  • Table 1:
    • revenues (unrelated parties, related parties, and total);
    • profit (loss) before tax;
    • income tax paid (cash basis);
    • income tax accrued - current year;
    • stated capital;
    • accumulated earnings;
    • number of employees; and
    • tangible assets - other than cash and cash equivalents.
  • Table 2:
    • constituent entities resident in each tax jurisdiction (including Tax ID and address);
    • jurisdiction of organization or incorporation if different from jurisdiction of residence; and
    • main business activities of each constituent entity.
  • Table 3:
    • additional information or explanation deemed necessary to understand the CbC report.

Where the CbC report is required to be filed locally in Estonia, the CbC report is required to be filed no later than 12 months after the last day of the reporting fiscal year of the MNE Group.

Language of Documentation    

The TP documentation needs to be submitted in the local language viz. Estonian. If the documentation is filed in English, the tax authorities may request a translation.

Penalties

The penalties for non-compliance of the transfer pricing requirements are as follows:

  • Failure to comply with the documentation requirements or filing of a required return may attract fines up to EUR 3,200;
  • Failure to submit information to the tax authority or submission of false information may attract a fine of up to EUR 32,000;
  • Failure to comply with the CbC reporting requirements attracts penalties up to EUR 3,300; and
  • Intentional submission of wrong information in the tax return may lead to criminal proceedings and may attract fines of up to EUR 16 million.