Management Decisions in Transfer Pricing

Abstract

The article is aimed at highlighting the importance of management decisions on valuing transactions between related parties and the effect of such transactions on an entity’s profit. The article will primarily focus on transactions carried out between members of multinational companies, with an emphasis on Societas Europea, as well as within a company – e.g. the establishment and the founder, as well as between partners, shareholders and the company itself. Transactions carried out between related parties may be different, e.g. the purchase and sale of goods, services or financial transactions. Individual transactions must be valued in accordance with the legislation of each country of the European Union, following the principle of an independent relation. In the pricing of transactions between related parties, there may be downward pressure on prices and thus, the correct profit from a transaction may be unrecognized. The subject of the article will be the just complexity of setting transfer prices, the risk of deviations in the valuation of transactions between related parties from the aspect of requirements of the legislation.