A founder owns an Estonian company and another company abroad. One entity invoices the other for management, software, a loan or use of equipment. The invoice may look ordinary, but common ownership changes the question the company must answer: would independent parties have agreed to the same scope, price and payment terms?
In my 15+ years in Estonian accounting, I have seen the greatest risk arise when the commercial explanation is created after the year has closed. The Income Tax Act, § 8 on associated persons uses common economic interest and dominant influence as the broad test and lists specific relationships. This guide turns that rule into a practical decision framework for an owner before the invoice, payment or year-end balance reaches accounting.
First identify the relationship, not just the legal entities
Related parties are not limited to a parent and subsidiary. The statutory examples include group companies, a company and a person holding at least 10% of its capital, votes or profit rights, persons holding more than 25% in the same legal person, and a company with its management-board member or certain close relatives. Common economic interest or dominant influence can also create the relationship outside a simple ownership chart.
Build the relationship map from beneficial ownership, board roles, family links and actual control. Do this when the transaction is approved, not only when the annual report asks for related-party balances.
| Situation | Why it needs review | Typical transaction |
|---|---|---|
| Founder owns the Estonian company and a foreign service company | Common ownership and economic interest | Management, development or marketing fee |
| Shareholder lends money to the company | Owner and company are associated | Loan, interest and repayment terms |
| Board member rents a private asset to the company | Management role affects independence | Office, vehicle or equipment rent |
| Two companies are controlled by the same people | Control may align both parties' decisions | Goods, staff, licences or shared costs |
Define what the company receives before discussing the price
A related-party invoice needs the same commercial substance as an independent one. For services, state the deliverable, period, responsible person and benefit to the Estonian company. For a loan, record the amount, currency, interest, maturity, security and repayment path. For rent or asset use, identify the asset, access period and costs included in the price.
An agreement alone is not proof that work happened. Keep time records, deliverables, correspondence, access logs, calculation sheets or acceptance evidence appropriate to the transaction. If the company cannot describe what it received, a benchmark will not repair the underlying problem.
| Transaction | Evidence of substance | Terms to fix in advance |
|---|---|---|
| Services | Scope, deliverables, time or output evidence | Fee basis and acceptance |
| Loan | Payment trail and purpose | Interest, maturity and repayment |
| Asset rental | Asset identity and actual use | Period, maintenance and liability |
| Shared cost | Supplier invoice and allocation calculation | Allocation key and beneficiaries |
Choose a pricing basis that an independent party could defend
The current regulation on methods for determining transfer prices describes several methods, including comparable price, resale price, cost-based, profit-split and transactional net-margin approaches. A small company should not select the most complex name. It should use the most reliable information available for the actual transaction and explain why that comparison fits.
An internal comparable is often persuasive: the same company sells the same service to an independent customer under similar terms. External quotes can help with standard rent or services. A cost-plus approach may fit routine support if the cost base and mark-up are documented. Loans need terms that reflect currency, duration, security and borrower risk rather than a convenient round percentage.
Example: a shareholder rents specialist equipment to the company for EUR 420 per month. Three current offers for similar equipment under similar maintenance terms are EUR 380, EUR 415 and EUR 450. Save the offers, explain the comparison and keep the rental agreement. The point is not that EUR 420 is a universal market price; it is that this company can show how its price was reached at the time of the decision.
Close the evidence gap before TSD or the annual report
Estonian law taxes the difference when a related-party price differs from the market value and the case is not already a fringe benefit. The EMTA example for related-party transactions in TSD Annex 6 shows how a taxable difference is identified by counterparty in Annex 6. It does not mean that every correctly priced related-party invoice is automatically declared as a tax adjustment.
Formal transfer-pricing documentation duties are broader for specified categories, but ordinary accounting evidence and the market-value principle matter well before a business reaches those thresholds. The EMTA guidance on transfer pricing and market value also stresses that the market value is the value independent persons would use for a similar transaction. Preserve the reasoning while quotes, people and deliverables are still available.
- Record who is related and why.
- Approve the business purpose and written terms before payment.
- Keep evidence that the service, loan or asset use actually existed.
- Save the comparable, quote or calculation used to support the price.
- Reassess recurring arrangements when scope, risk or market conditions change.
- Give the accountant the agreement and pricing note before TSD and year-end close.
If the transaction is a shareholder loan, also review our guide to shareholder loans, annual-report notes and tax risks. It covers the balance-sheet and disclosure side that continues after the original pricing decision.
The weak file usually has an invoice and a payment but no decision trail. I want to see three things together: why the company needed the transaction, what it actually received and how the price was tested. When those answers are recorded at the start, year-end work becomes much calmer.
Related-party transactions in Estonia are manageable when the company starts with substance, then price and finally tax reporting. Map the relationship, document the commercial need, choose a credible comparison and keep the evidence with the accounting record.
If your company pays a shareholder, board member or group company, Accounting Resources can help organise the accounting evidence and flag when specialist tax analysis is needed. Use our contact form before the next payment or year-end close.