Investor Presentaiton
Transfer pricing
Last few years, the transfer pricing has become one of the
biggest priorities of the Czech tax authorities. Originally,
the focus was driven by global BEPS (Base Erosion and
Profit Shifting) initiatives. However, these days, it is the
state administration's interest in compliance of companies
with valid regulations and arm's length principles meaning
that transfer pricing is now regular part of tax audits.
Beside being part of regular tax audits, there are also
many specialised TP audits which are focused mainly on
companies with investment incentives, companies incurring
tax losses and companies receiving a significant volume of
intra-group services.
Czech legislation is relatively simple in this area. Transfer
pricing is dealt with in a short provision that states that if
prices agreed in transactions between related parties are not
at arm's length and the difference is not properly justified,
the tax base should be adjusted. It is possible to request a
unilateral or bilateral advance pricing agreement from the tax
authorities on the appropriate transfer pricing methodology.
No retroactive agreements are possible.
In addition to the provisions of the Income Taxes Act,
the Ministry of Finance has issued guidelines providing
more detailed information, especially on transfer pricing
documentation (e.g. Decrees D-34, D-32, D-334 and
D-10). These are not legally binding, but given that the
tax authorities usually follow them, they represent useful
guidance for taxpayers.
Companies are also under certain conditions required
to disclose related party transactions sorted by type of
transaction (e.g. tangible and intangible assets, goods,
services, royalties, guarantees, interests etc.), including the
volumes realized with each related party, in an appendix to
the corporate income tax return.
There is currently no legal obligation to prepare a transfer-
pricing documentation. However, during tax inspections,
the tax authorities regularly require a transfer pricing
documentation to be provided, usually giving taxpayers a
deadline of 15-30 days.
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