The Finance Ministry (MoF) has issued Letter No. 03-01-18/1989 on 23rd January 2015 describing the rules for definition of a company and its employees as related parties for transfer pricing determinations. The MoF considered that the meaning of related party has been given under article 105.1(2) of the Tax Code, but a company and its employees should only be counted as related parties if certain conditions apply. The company and its employee can be considered as related parties they satisfies the following criteria:
- If the employee holds at least a 25% direct or indirect shareholding in the company;
- If the employee has the authority to elect the sole executive body of the company or at least 50% of the collegial executive body or board of directors of the company; and
- In a situation where the employee executes the functions of the sole executive body of the company.
If the company and its employee are considered to be related parties, the prices used in transactions between them should be at the market level as the transfer pricing rules are applicable.
