diff --git a/inference-engine/tests/functional/plugin/myriad/ngraph/transformations/merge_subsequent_dsr_operations.cpp b/inference-engine/tests/functional/plugin/myriad/ngraph/transformations/merge_subsequent_dsr_operations.cpp
new file mode 100644
index 00000000000..1c04279f9af
--- /dev/null
+++ b/inference-engine/tests/functional/plugin/myriad/ngraph/transformations/merge_subsequent_dsr_operations.cpp
@@ -0,0 +1,169 @@
+// Copyright (C) 2020 Intel Corporation
+// SPDX-License-Identifier: Apache-2.0
+//
+
+#include <common_test_utils/test_common.hpp>
+#include <ngraph_functions/utils/ngraph_helpers.hpp>
+#include <gtest/gtest.h>
+
+#include "ngraph/ngraph.hpp"
+#include "ngraph/opsets/opset4.hpp"
+
+#include "vpu/ngraph/operations/dynamic_shape_resolver.hpp"
+#include "vpu/ngraph/transformations/merge_subsequent_dsr_operations.hpp"
+
+namespace {
+
+TEST(MergeSubsequentDSROperations, SingleDSRFunction) {
+    // shape
+    //      \
+    //        dsr
+    //      /
+    // data
+
+    const auto inputType  = ngraph::element::f16;
+    const auto inputShape = ngraph::Shape{1};
+
+    const auto data = std::make_shared<ngraph::opset4::Parameter>(inputType, inputShape);
+    const auto shape = std::make_shared<ngraph::opset4::Parameter>(ngraph::element::i64, ngraph::Shape{inputShape.size()});
+
+    const auto dsr = std::make_shared<ngraph::vpu::op::DynamicShapeResolver>(data, shape);
+    const auto reference = std::make_shared<const ngraph::Function>(
+        ngraph::NodeVector{dsr},
+        ngraph::ParameterVector{data, shape},
+        "SingleDSRFunction");
+    auto actual = ngraph::clone_function(*reference);
+
+    vpu::MergeSubsequentDSROperations().run_on_function(actual);
+
+    ASSERT_NO_THROW(ngraph::helpers::CompareFunctions(*reference, *actual));
+}
+
+TEST(MergeSubsequentDSROperations, DSR_ReLU_DSR_ReLU_DSR) {
+    //          one_1
+    //               \
+    //   one_0        sum_1 - - - - - - - - - - dsr_2
+    //        \     /                          /
+    // shape - sum_0 - - - - - dsr_1 - relu_1 -
+    //        \               /
+    //         dsr_0 - relu_0
+    //        /
+    // data -
+    //
+
+    const auto inputType  = ngraph::element::f16;
+    const auto inputShape = ngraph::Shape{1};
+
+    const auto data  = std::make_shared<ngraph::opset4::Parameter>(inputType, inputShape);
+    const auto shape = std::make_shared<ngraph::opset4::Parameter>(ngraph::element::i64, ngraph::Shape{inputShape.size()});
+    const auto dsr_0 = std::make_shared<ngraph::vpu::op::DynamicShapeResolver>(data, shape);
+
+    const auto relu_0 = std::make_shared<ngraph::opset4::Relu>(dsr_0);
+
+    // emulates shape subgraph for operation ReLU
+    const auto one_0 = std::make_shared<ngraph::opset4::Constant>(ngraph::element::i64, ngraph::Shape{1}, std::vector<std::int64_t>{1});
+    const auto sum_0 = std::make_shared<ngraph::opset4::Add>(shape, one_0);
+
+    const auto dsr_1 = std::make_shared<ngraph::vpu::op::DynamicShapeResolver>(relu_0, sum_0);
+
+    const auto relu_1 = std::make_shared<ngraph::opset4::Relu>(dsr_1);
+
+    // emulates shape subgraph for operation ReLU
+    const auto one_1 = std::make_shared<ngraph::opset4::Constant>(ngraph::element::i64, ngraph::Shape{1}, std::vector<std::int64_t>{1});
+    const auto sum_1 = std::make_shared<ngraph::opset4::Add>(sum_0, one_1);
+
+    const auto dsr_2 = std::make_shared<ngraph::vpu::op::DynamicShapeResolver>(relu_1, sum_1);
+
+    const auto reference = std::make_shared<const ngraph::Function>(
+        ngraph::NodeVector{dsr_2},
+        ngraph::ParameterVector{data, shape},
+        "DSR_ReLU_DSR_ReLU_DSR");
+    auto actual = ngraph::clone_function(*reference);
+
+    vpu::MergeSubsequentDSROperations().run_on_function(actual);
+
+    ASSERT_NO_THROW(ngraph::helpers::CompareFunctions(*reference, *actual));
+}
+
+TEST(MergeSubsequentDSROperations, DSR_ReLU_DSR_DSR) {
+    // Before:
+    //          one_1
+    //               \
+    //   one_0        sum_1 - - - - - - dsr_2
+    //        \     /                  /
+    // shape - sum_0 - - - - - dsr_1 -
+    //        \               /
+    //         dsr_0 - relu_0
+    //        /
+    // data -
+    //
+    // After:
+    //          one_1
+    //               \
+    //   one_0        sum_1 - - - - - - dsr_2
+    //        \     /                  /
+    // shape - sum_0                  /
+    //        \                      /
+    //         dsr_0 - relu_0 - - - -
+    //        /
+    // data -
+
+    const auto inputType  = ngraph::element::f16;
+    const auto inputShape = ngraph::Shape{1};
+
+    std::shared_ptr<ngraph::Function> actual;
+    {
+        const auto data  = std::make_shared<ngraph::opset4::Parameter>(inputType, inputShape);
+        const auto shape = std::make_shared<ngraph::opset4::Parameter>(ngraph::element::i64, ngraph::Shape{inputShape.size()});
+        const auto dsr_0 = std::make_shared<ngraph::vpu::op::DynamicShapeResolver>(data, shape);
+
+        const auto relu_0 = std::make_shared<ngraph::opset4::Relu>(dsr_0);
+
+        // emulates shape subgraph for operation ReLU
+        const auto one_0 = std::make_shared<ngraph::opset4::Constant>(ngraph::element::i64, ngraph::Shape{1}, std::vector<std::int64_t>{1});
+        const auto sum_0 = std::make_shared<ngraph::opset4::Add>(shape, one_0);
+
+        const auto dsr_1 = std::make_shared<ngraph::vpu::op::DynamicShapeResolver>(relu_0, sum_0);
+
+        // emulates shape subgraph for operation ReLU
+        const auto one_1 = std::make_shared<ngraph::opset4::Constant>(ngraph::element::i64, ngraph::Shape{1}, std::vector<std::int64_t>{1});
+        const auto sum_1 = std::make_shared<ngraph::opset4::Add>(sum_0, one_1);
+
+        const auto dsr_2 = std::make_shared<ngraph::vpu::op::DynamicShapeResolver>(dsr_1, sum_1);
+
+        actual = std::make_shared<ngraph::Function>(
+            ngraph::NodeVector{dsr_2},
+            ngraph::ParameterVector{data, shape},
+            "DSR_ReLU_DSR_DSR");
+    }
+
+    std::shared_ptr<const ngraph::Function> reference;
+    {
+        const auto data  = std::make_shared<ngraph::opset4::Parameter>(inputType, inputShape);
+        const auto shape = std::make_shared<ngraph::opset4::Parameter>(ngraph::element::i64, ngraph::Shape{inputShape.size()});
+        const auto dsr_0 = std::make_shared<ngraph::vpu::op::DynamicShapeResolver>(data, shape);
+
+        const auto relu_0 = std::make_shared<ngraph::opset4::Relu>(dsr_0);
+
+        // emulates shape subgraph for operation ReLU
+        const auto one_0 = std::make_shared<ngraph::opset4::Constant>(ngraph::element::i64, ngraph::Shape{1}, std::vector<std::int64_t>{1});
+        const auto sum_0 = std::make_shared<ngraph::opset4::Add>(shape, one_0);
+
+        // emulates shape subgraph for operation ReLU
+        const auto one_1 = std::make_shared<ngraph::opset4::Constant>(ngraph::element::i64, ngraph::Shape{1}, std::vector<std::int64_t>{1});
+        const auto sum_1 = std::make_shared<ngraph::opset4::Add>(sum_0, one_1);
+
+        const auto dsr_2 = std::make_shared<ngraph::vpu::op::DynamicShapeResolver>(relu_0, sum_1);
+
+        reference = std::make_shared<const ngraph::Function>(
+            ngraph::NodeVector{dsr_2},
+            ngraph::ParameterVector{data, shape},
+            "DSR_ReLU_DSR_DSR");
+    }
+
+    vpu::MergeSubsequentDSROperations().run_on_function(actual);
+
+    ASSERT_NO_THROW(ngraph::helpers::CompareFunctions(*reference, *actual));
+}
+
+} //namespace