Paying Your Own Other Company: Related-Party Transactions and Transfer Pricing for Small OÜs
Charging one of your own companies for work done by another is completely normal, and it is legal. Founders run a holding company, an operating OÜ, and sometimes an IP-holding entity side by side, and money is supposed to move between them for management fees, licences, and loans. The catch is that every one of those prices has to hold up as if the two companies were strangers — that rule does not care how small either company is.
The short answer
The arm’s-length principle applies to every transaction between related persons, regardless of company size — a two-person group is just as bound by it as a multinational.
Only the formal documentation obligation is size-gated: it kicks in at 250+ employees, €50 million+ turnover, or a €43 million+ consolidated balance sheet.
Below those thresholds you skip the Master File / Local File paperwork, but the Estonian Tax and Customs Board (EMTA) can still challenge a price at any time.
A mispriced deal between related companies can be recharacterised as a hidden profit distribution, taxed at 22/78 and reported on TSD annex 7.
Loans between related parties are reported quarterly on form INF 14 — EMTA already sees the money moving, so silence is not a strategy.
You justify a price with the same logic professionals use: a comparable market rate, a cost-plus markup, or a documented margin — kept on file even without a formal report.
Who counts as a related person in Estonia?
A related person (seotud isik) is anyone who can influence the terms of a transaction because of ownership, control, or family ties, not just a formally separate legal entity. This covers a parent and its subsidiary, two subsidiaries owned by the same person, a company and its shareholder or board member, and close relatives of those individuals. If you personally hold both OÜs, every transaction between them is a related-party transaction by definition — there is no minimum ownership percentage that makes it stop counting.
This also reaches beyond formal group structures. A management contract between your consulting OÜ and your e-commerce OÜ counts, even though the two entities have never filed consolidated accounts together and have no legal obligation to. The Estonian Income Tax Act treats the substance of control, not the label on the org chart, as the trigger for the arm’s-length rule.
Is transfer pricing really a rule for small companies too?
Yes — the pricing rule and the paperwork rule are two separate things, and founders usually only hear about the second one. The arm’s-length principle itself has no size threshold: it applies the moment two related persons transact, whether that is a €50 monthly recharge or a €5 million licence fee. What is size-gated is the obligation to prepare formal transfer pricing documentation (Master File and Local File style reports), which only bites once a company, together with its associated persons, crosses 250 employees, €50 million in turnover, or a €43 million consolidated balance sheet.
That gap is exactly where small founder groups get caught out. Being under the documentation threshold does not mean you are exempt from setting the right price — it means nobody is forcing you to write a 40-page report about it in advance. EMTA can still ask, at any point, why your operating company paid €4,000 a month to your holding company for “management services” and whether that price reflects what an unrelated consultant would have charged.
Arm’s-length pricing obligation | Formal documentation obligation | |
|---|---|---|
Who it applies to | Every related-party transaction, any company size | Only companies (with associated persons) meeting the size thresholds |
Size threshold | None | 250+ employees, or €50 million+ turnover, or €43 million+ consolidated balance sheet |
What it requires | The price must reflect what unrelated parties would agree | A Master File, Local File, and (above separate thresholds) Country-by-Country Report |
Can EMTA still act if you’re below the threshold? | Yes — always | N/A, you’re exempt from preparing the reports |
Consequence of getting it wrong | Price adjustment, hidden profit distribution tax (22/78) | Fines for failing to produce documentation on request |
A two-person OÜ paying a management fee to the founder’s other company is below the documentation threshold and still fully inside the arm’s-length rule — the paperwork exemption never becomes a pricing exemption.
What common transactions between your own companies actually get tested?
Five transaction types show up constantly in small founder groups, and each one gets tested against a slightly different benchmark. The common thread is always the same question: what would an unrelated party have charged or paid for this?
Management and administration fees
A holding company charging an operating subsidiary for strategic direction, bookkeeping oversight, or admin support is one of the most common intra-group flows, and also one of the most scrutinised. The fee has to correspond to actual services rendered — hours worked, decisions made, deliverables produced — not a round number picked to shift profit into whichever entity has losses to absorb.
IP and brand licences
If one OÜ owns a trademark, software, or a brand and licenses it to a sister company, the royalty rate needs to look like something a real licensor would negotiate. Rates quoted in comparable industry licensing deals, or a reasonable percentage of revenue tied to what the IP actually contributes, are the usual reference points.
Intra-group loans and interest
A loan from one of your companies to another needs a market interest rate, a real repayment schedule, and genuine intent to collect. This overlaps directly with the hidden profit distribution rules covered below — an underpriced or interest-free loan to a related company is exactly the kind of arrangement EMTA already watches through quarterly reporting.
Shared staff and secondments
When an employee formally on one company’s payroll spends real time working for a sister company, that time has a cost, and it should be recharged — typically at salary cost plus a reasonable markup for overhead, not left unbilled as a favour between “your own” entities.
Cost recharges (office, software, shared services)
Shared rent, shared SaaS subscriptions, or a shared accountant split between companies should be allocated on a defensible basis — headcount, usage, or revenue share — and that basis should be written down, even informally, so it can be reproduced if asked.
Transaction type | How you justify the price | What to keep on file |
|---|---|---|
Management / admin fee | Market rate for equivalent consulting or management services; hours or scope actually delivered | Contract, invoice detail, time or deliverable log |
IP / brand licence | Comparable royalty rates in the industry, or a revenue-linked percentage tied to IP value | Licence agreement, rate rationale, revenue basis |
Intra-group loan | Market interest rate for a loan of similar size, term, and risk | Loan agreement, interest rate, repayment schedule, actual repayments |
Shared staff / secondment | Salary cost plus a reasonable overhead markup for the time actually worked | Time records, secondment letter, recharge invoice |
Cost recharge (office, software, services) | Objective allocation key: headcount, usage, or revenue share | Allocation method note, underlying supplier invoices, recharge calculation |
How do you actually set an arm’s-length price?
You set it the same way tax authorities and advisors do worldwide, using one of the internationally recognised transfer pricing methods. Estonia follows the OECD Transfer Pricing Guidelines, which set out five accepted methods — you do not need to run all five, just pick whichever fits the transaction and can be explained simply.
Comparable Uncontrolled Price (CUP) — compare your price to what unrelated parties charge for the same or a very similar service, licence, or loan. The most direct method when a genuine external comparable exists.
Cost Plus — take the actual cost of providing the service (staff time, overhead) and add a reasonable markup, common for management and administrative services.
Resale Price Minus — start from the price a related distributor resells at and subtract a normal distribution margin, mainly relevant if one of your companies buys from another to resell.
Transactional Net Margin Method (TNMM) — compare the net profit margin your related transaction earns to margins earned by comparable independent companies, useful when a direct price comparison isn’t available.
Profit Split — divide combined profit between the two companies based on their real contributions, used mainly when both sides bring something unique and hard to price separately.
For a small founder group, Cost Plus and CUP cover the great majority of real situations: a management fee is cost plus a markup, and a loan’s interest rate is a CUP comparison against what a bank or a comparable unrelated lender would charge for similar risk and term. You don’t need a specialist study to apply either method sensibly — you need a documented reason for the number you picked.
What should a small OÜ keep on file even below the documentation threshold?
Even without the formal Master File and Local File, you should be able to hand EMTA a short, coherent explanation of every related-party price within a reasonable time of being asked. Keep this file live, not reconstructed after the fact — reconstructing a rationale a year later, after a tax notice arrives, is far weaker evidence than a note written when the price was set.
A short written note of why this price was chosen — the method used (cost plus, comparable rate, market interest) and the figures behind it.
The contract or agreement itself, even a simple one, dated before or at the start of the arrangement, not backdated.
Invoices and payment records matching the agreed terms exactly, including for recurring services like management fees.
For loans: the interest rate rationale, the repayment schedule, and evidence that repayments actually happened on schedule.
For shared staff or cost recharges: the allocation key used (hours, headcount, usage) and the underlying numbers it was calculated from.
Any market comparable you relied on — a quote, a published rate, an industry benchmark — even a simple screenshot or saved reference is better than nothing.
This is not the three-tier BEPS report described below; it is a plain paper trail proportionate to a small group’s size. It costs almost nothing to build at the time a price is set, and it is the difference between a five-minute conversation with EMTA and a drawn-out audit built entirely on assumptions.
How does this connect to hidden profit distribution?
A related-party price that is off-market does not just get corrected — it can be recharacterised as a hidden profit distribution under the same rules that apply to owner loans and personal spending on a company card. If EMTA decides a management fee, licence royalty, or loan interest rate was set to shift profit out of a company rather than to pay for something real, it can tax the difference at 22/78, the identical corporate income tax rate applied to a normal dividend.
The reporting mechanics reinforce this. A recharacterised amount is declared on TSD annex 7, the same form used for regular dividend distributions, due by the 10th of the following month. Loans between related parties — including between your own companies, not only loans to you personally — are also visible to EMTA through the quarterly INF 14 report, part IV, due by the 20th of the month after the quarter. The tax authority is not relying on a tip-off to find these arrangements; it already receives the data as part of routine compliance.
The practical upshot is that a mispriced related-party deal and an underpriced owner loan sit on the same enforcement track. If your holding company “lends” money to your operating company with no interest and no real repayment plan, that gets scrutinised exactly like a loan to you personally would — the counterparty being a company you also own does not create a safe harbour.
What is the three-tier BEPS documentation model, and does it apply to you?
Estonia implements the OECD’s BEPS Action 13 three-tier model — a Master File, a Local File, and a Country-by-Country Report — through a Ministry of Finance regulation that sits alongside the Income Tax Act. This is the formal documentation package that only becomes mandatory once a company, together with its associated persons, meets the 250-employee, €50 million turnover, or €43 million balance sheet threshold described above; the same thresholds apply to a non-resident company operating in Estonia through a permanent establishment.
For most founder-run groups of two or three OÜs, this three-tier system will never be legally required. It is still worth understanding what it contains, because it defines what “good” documentation looks like even in miniature: the Master File describes the group’s business and pricing policies at a high level, the Local File justifies the specific transactions of one entity in detail, and the Country-by-Country Report maps profit, tax, and activity across jurisdictions for the largest multinational groups. Scaling that logic down — a short rationale per transaction type, kept current — is effectively what a small group should be doing informally.
What happens if EMTA disagrees with your price?
If EMTA concludes a related-party price was not at arm’s length, it can adjust the taxable amount to what it considers a market price would have been, and tax the difference accordingly. For a service or licence fee that was set too high or too low relative to a comparable, this typically shows up as a corporate income tax adjustment; where the arrangement looks like disguised profit extraction — an inflated fee, an interest-free loan, a royalty with no real basis — it is treated as a hidden profit distribution at 22/78.
Companies above the documentation threshold that fail to produce a Master File or Local File when EMTA formally requests it face an administrative fine on top of any tax adjustment; smaller companies below the threshold do not face that specific documentation fine, but a challenged price can still trigger the same 22/78 tax exposure, statutory late-payment interest, and — in persistent or large cases — a full audit of the group’s other related-party dealings. The financial risk from getting the price wrong is identical whether or not you were ever required to write a formal report about it.
In practice, the single best defence is the file described above: a contemporaneous note showing which method you used and why. It will not always end a dispute outright, but it shifts the conversation from “prove your price was fair” to “here is why we set it this way,” which is a materially stronger position.
Frequently asked questions
Does transfer pricing apply if my companies are both tiny?
Yes. The arm’s-length principle applies to every transaction between related persons regardless of company size — only the formal Master File and Local File documentation requirement is limited to larger companies (250+ employees, €50 million+ turnover, or a €43 million+ consolidated balance sheet).
What counts as a related person under Estonian tax law?
A related person includes a parent and subsidiary, sister companies under common ownership, a company and its shareholder or board member, and close relatives of those individuals. Owning two OÜs personally makes every transaction between them a related-party transaction.
Do I need a formal transfer pricing study for a two-company group?
No, not if you’re below the size thresholds. You do still need a defensible price and a short written rationale (method used, figures behind it, contract, invoices) that you can produce if EMTA asks.
How do I set a fair price for a management fee between my own companies?
Use Cost Plus: total the real cost of the time and resources delivering the service, then add a reasonable markup comparable to what an unrelated consultancy would charge for similar work. Keep a log of the hours or deliverables behind the fee.
What interest rate should an intra-group loan carry?
A rate comparable to what an unrelated lender would charge for a loan of similar size, term, and risk — the CUP method applied to lending. A zero-interest or below-market loan between related companies risks the same hidden profit distribution treatment as an underpriced owner loan.
Is a related-party loan the same risk as a loan to me personally?
The enforcement logic is the same. Both are reported quarterly on INF 14, and both can be recharacterised as a hidden profit distribution taxed at 22/78 if the terms suggest the loan was never really meant to be repaid at market conditions.
What happens if EMTA thinks my related-party price was wrong?
EMTA can adjust the taxable amount to what it considers an arm’s-length price and tax the difference, typically as a corporate income tax adjustment or, where the arrangement looks like profit extraction, as a hidden profit distribution at 22/78, plus statutory late-payment interest on the shortfall.
Does the BEPS three-tier documentation model ever apply to a small founder group?
Only once you cross the size thresholds — 250+ employees, €50 million+ turnover, or a €43 million+ consolidated balance sheet, counted together with associated persons. Below that, the Master File, Local File, and Country-by-Country Report are not mandatory, though their logic is a useful template for a lighter internal file.
Where can I find official guidance from the Estonian tax authority?
Start at EMTA’s main site, which covers corporate taxation in English, and see EMTA’s page on hidden profit distribution taxation for the recharacterisation rules that sit alongside transfer pricing.
