Following the recent global trend, transfer pricing arrangements have also drawn the attention of the Czech tax authority. Together with the use of tax havens in group structures, transfer pricing has become one of the main targets during tax audits. The tax authority views transfer pricing as a very risky area often leading to aggressive tax planning and tax evasion.
Based on the published figures, the tax authority assessed additional tax of approx. EUR 37 million as a result of tax audits aimed at transfer pricing and tax havens factors during 2015 and 1Q 2016. More precisely, these tax audits generated EUR 17 million of additional tax revenue in 2015 and another EUR 19 million just during 1Q 2016.
The increased pressure on transfer pricing follows the introduction of a special transfer pricing annex to the tax return in 2014. The tax authority uses the collected data to focus on suspicious entities, e.g. selecting entities with long-term tax losses and significant transactions with related parties reported in the annex.
Given recent successes, TPA perceives this approach as a new trend in the Czech tax authority which is only expected to grow stronger. It would therefore be advisable to review any intra-group transactions and be prepared to support an assertion to the effect that prices have been set in line with the arm’s length principle (e.g. with transfer pricing documentation) before a tax officer knocks at your door.
Should you have any questions regarding the issues above, please do not hesitate to contact Lukáš Pěsna, e-mail: email@example.com.