Czech Republic: Tax Authorities Seek Full Disclosure of Related-Party Transactions Details

New initiatives that are currently ongoing at both international level and national level confirm that transfer pricing is one of the most important areas with regard to tax risks of multinational corporations.

BEPS Action Plan.

The OECD issued its Action Plan on Base Erosion and Profit Shifting (“BEPS”) last year. It is expected that this will have major impact on international taxation, especially with regard to transfer pricing.

New Attachment to Corporate Income Tax Return in Czech Republic.

In response to the more stringent international requirements and to the broader national experience with regard to transfer pricing, the Czech Tax Administration introduced a new attachment to the Corporate Income Tax Return from the fiscal year 2014 onwards. Therein, corporations will have to report details for each type of transaction including the related-party’s country of residence, the nature of the transaction, the transaction volume as well as a summary of the related-party receivables and liabilities.

Obliged corporations.

Each Czech entity that meets at least one of the criteria triggering compulsory statutory audit and at the same time participates in cross-border related-party transactions, or incurs a loss, or receives investment incentives in the form of a tax relief is obliged to fill in the new attachment to the Corporate Income Tax Return.

Purpose and link to transfer pricing documentation.

The information on the specific related-party transactions will be subject to a risk analysis for the Czech Tax Authorities. It is expected that under the new regime Czech Tax Authorities will specifically focus in tax audits on high-risk transactions and corresponding transfer pricing documentations. Since the reported information is used for detection purposes only, the existence of proper OECD compliant transfer pricing documentation is expected. In addition to substance and benefit tests, special focus is laid on the proof of substance with respect to the allocation of functions and risks.

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Viktoria Lang

Viktoria Lang

Senior Assistant| Deloitte Tax
Telefon: +43 1 537 00 7115
Mail: vlang@deloitte.at

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