Estonia: local rules

Estonia does not tax company profit year by year (banks are the exception: they pay an advance tax on each quarter's profit, TuMS s. 47¹). A company pays income tax (22 percent, charged as 22/78 of the net amount) only when it pays profit out, and on a few other items such as fringe benefits, gifts and non-business spending (Income Tax Act, Tulumaksuseadus, TuMS, ss. 4 and 50). The arm's length rule sits inside this system. Section 8(2) TuMS says the gap between a related-party price (the transfer price) and the market value of similar deals between unrelated persons is taxed under s. 14, 50 or 53. For a resident company, s. 50(4) taxes the amount the company would have earned, or would not have deducted, if the price had matched market value. Section 14(7) does the same for sole proprietors. No tax is charged on the gap if the company already paid, or had withheld, income tax on it (s. 50(5)). The methods and record rules are in Minister of Finance Regulation No. 53 of 10 November 2006, as in force from 1 January 2022 (TuMS s. 14(8), s. 50(6) and (8)).

Estonia has no annual transfer pricing form and no fixed date by which the files must be ready. The extra written documentation rules in s. 18 of Regulation No. 53 apply to a resident company that, counted together with its related persons, has 250 or more employees, or turnover of EUR 50 million or more in the year before the deal, or a balance sheet total of EUR 43 million or more. They also apply to resident credit institutions, insurers and listed companies, to deals with a person in a jurisdiction that does not cooperate on tax matters, and to Estonian permanent establishments above the same size limits. The files are a master file (põhitoimik, group data), a taxpayer file (maksumaksja toimik, the local file) and, for groups with revenue of EUR 750 million or more, the country-by-country report (s. 18(3)). They are handed over only when the tax authority asks, and it must give at least 60 days (TuMS s. 50(7)). The files can be in a foreign language, but the authority can ask for an Estonian translation within a reasonable time (s. 18(9)). Smaller companies need no extra files but must still keep ordinary business records that show the price is arm's length.

Regulation No. 53 s. 11(1) lists five methods: comparable price, resale price, cost-based, profit split and transactional return (net margin). Another method may be used if the facts do not allow these, and the choice must be justified (s. 11(3)). The method with the most reliable result is chosen, and the tax authority can reject the chosen method and use another one (s. 11(2) and (4)). A price inside the range from the lower to the upper quartile of the comparables counts as arm's length. A price outside the range can be adjusted by the authority to a value inside the range (s. 11(8) and s. 2 point 6). A 5 percent mark-up on cost for low value-adding group services needs no comparable data (s. 6(3)). The OECD Guidelines are recommended as far as they do not conflict with the regulation (s. 20).

A transfer pricing adjustment is taxed like a distribution (22/78 of the net amount), and late payment interest is 0.06 percent a day (Taxation Act, Maksukorralduse seadus, MKS, s. 117). Failing to file a return or document on time, or ignoring an order of the tax authority, can be fined up to EUR 3,200 for a company (MKS s. 154(2)). Intentionally leaving out data or giving false data to cut tax can be fined up to EUR 32,000 for a company (MKS s. 153¹(2)). Failing the duties of a reporting entity under the Tax Information Exchange Act, which covers country-by-country reporting, can be fined up to EUR 50,000 for a company (MKS s. 155³(2), in force from 25 April 2026). For a return that is not filed, the authority can also set a periodic penalty payment, capped at EUR 1,300 the first time, EUR 2,000 the second time and EUR 3,300 in total (MKS s. 91(4)). No penalty aimed only at missing transfer pricing files was found. Estonia has no transfer pricing APA, because the binding advance ruling procedure does not apply to s. 14(7) and s. 50(4) TuMS (MKS s. 91²(2)).

Estonia has enacted only the reporting part of Pillar Two, and it has no top-up tax. The rules are in chapter 10³ of the Income Tax Act (ss. 54¹⁰ and 54¹¹, in force from 12 May 2024). There is no separate minimum tax act. Estonia used the Article 50 deferral in Directive (EU) 2022/2523, so it has no qualified domestic top-up tax, no income inclusion rule and no UTPR. The Ministry of Finance says the minimum tax is not applied until 2030 (a secondary source puts the start at fiscal years beginning on or after 31 December 2029). If the ultimate parent entity is in Estonia and the group had revenue of EUR 750 million or more in two of the last four years, the parent must name an entity in another EU country (or a qualifying third country) to file the top-up tax information return, and the Estonian entities must give that entity the data it needs (s. 54¹⁰(4) and (5)). Estonian law sets no filing date and there is no Estonian return. The deadline is the Directive's 15 months after the year end, or 18 months for the first year, so 30 June 2026 for calendar 2024 (Ministry of Finance). No Estonian Pillar Two filing was found for a group whose parent is outside Estonia.

Country-by-country report: a resident ultimate parent files it with EMTA by 31 December of the calendar year after the reporting year (Tax Information Exchange Act, MTVS, s. 20⁵(1)). Every Estonian group member must also tell EMTA within six months of the group's year end whether it is a reporting entity or who is (s. 20⁶), which EMTA gives as 30 June for a calendar year group. Estonia taxes distributions, so there is no annual corporate income tax return. The main filing is the monthly TSD return, with Annex 7 for dividends, due by the 10th of the month after the payment, and the tax is due the same day (TuMS ss. 54 and 56). Companies also file an annual report with the Business Register within six months of the year end (Commercial Code ss. 179(4) and 334(2)). A non-resident with an Estonian permanent establishment files that establishment's annual report with EMTA within six months (TuMS s. 55(2)). Deadlines on a weekend or public holiday move to the next working day (General Part of the Civil Code Act s. 136(8), applied to tax time limits by MKS s. 50(1); EMTA's TSD guide says the same).