In January 2026, the Czech Regional Court issued a significant ruling in Czech Republic v. Hitachi Astemo Czech s.r.o. (Case No. 15 Af 10/2023–128), addressing the transfer pricing implications of group-driven restructuring and clarifying the burden of proof required from tax authorities.
The decision follows a November 2025 judgment of the Czech Supreme Administrative Court and provides important guidance on how economic substance, intra-group instructions, and comparability analysis should be assessed under Czech transfer pricing rules.
Background: Strategic Restructuring and Reported Losses
The transition required substantial investment and operational adjustments. The company reported a tax loss for the period due to restructuring and start-up costs.
The Czech tax authority treated the group instruction and its economic consequences as a controlled arrangement under Section 23(7) of the Czech Income Tax Act. In its view, the Czech entity bore risks and costs that an independent enterprise would not have accepted without compensation.
Supreme Administrative Court: Actual Conduct Over Formal Agreements
In November 2025, the Supreme Administrative Court clarified that transfer pricing analysis must focus on actual conduct rather than formal contractual documentation.
The Court confirmed that a written contract is not required for a controlled arrangement to exist. What matters is the economic reality of how related parties act and allocate risk.
However, the Supreme Court remanded the case. The central issue was not whether transfer pricing rules could apply in principle, but whether the tax authority had sufficiently demonstrated non-arm’s-length conditions and properly substantiated its adjustment methodology.
Regional Court: Adjustment Annulled for Insufficient Proof
On remand, the Regional Court annulled the tax assessment.
The Court did not reject the possibility that restructuring decisions may fall within transfer pricing rules. Instead, it emphasized evidentiary standards.
It concluded that the tax authority failed to:
- Establish reliable and essentially comparable transactions;
- Justify the selected pricing method;
- Provide sufficient analytical support for its reference price determination.
Under Czech law, the burden of proof lies with the tax authority. Where comparable data is available, it must be used. Administrative estimation is permissible only where comparables cannot be identified.
Because this standard was not met, the assessment was set aside and returned to the authority for further proceedings.
Practical Impact for Multinational Groups
The case reinforces several principles relevant beyond the Czech Republic:
Group instructions may trigger transfer pricing scrutiny.
Strategic decisions that allocate risk and costs within a group can constitute relevant arrangements for transfer pricing purposes, even in the absence of formal contracts.
Losses alone do not justify adjustments.
Authorities must demonstrate that independent parties would have required compensation under comparable circumstances.
Methodological rigor is decisive.
Adjustments must be supported by defensible comparability analysis and transparent reasoning.
The Hitachi Astemo decision illustrates the increasing focus on economic substance in transfer pricing disputes, while simultaneously reaffirming that adjustments must meet strict evidentiary standards.
For multinational enterprises, the case highlights the importance of documenting restructuring decisions, aligning functional analysis with financial outcomes, and ensuring that risk allocation can withstand scrutiny.
As transfer pricing controversies increasingly intersect with operational strategy, governance and analytical robustness remain critical.
Our advisory team supports multinational groups with transfer pricing design, restructuring analysis, documentation, audit defense, and controversy management.
Get in touch with our team to discuss how we can help you strengthen your transfer pricing position and manage tax risk in an evolving regulatory landscape.
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