Measure and Recognition of Transactions Between Related Parties in Accounting and Tax Law Regulations

Abstract

The progressive process of globalisation of the world economy results in an increasing number of transactions being made within groups of companies. Links between the entities facilitate an uninhibited setting of prices and the use of prices to reach an important company's goals. Prices set among related parties are used primarily as a tool for reducing tax burden. Governments protect themselves against such a reduction of their income by introducing regulations aimed at preventing profit transfers. There is an international consensus in terms of taxation of transactions made by transnational companies. The OECD recommends setting prices in related parties' transactions based on market price, i.e. a price which would be set by independent entities, that is the transaction price. Most countries, including Poland, have accepted such a solution. The issue of transfer prices is determined by national and international accounting and tax law regulations. Obligatory documentation for tax purposes, as well as the scope of disclosure of information relating to transactions made between related parties, is of particular importance.