This document summarizes the transfer pricing requirements and regulations in Czech Republic. In the Czech Republic, the importance of transfer pricing is gaining recognition, leading to more tax audits focusing on related party transactions. The country’s transfer pricing legislation encompasses transactions involving both companies and individuals, with a clear emphasis on adhering to the arm’s length principle defined in the OECD Guidelines. Recent changes aim to prevent profit shifting and tax evasion. This document outlines the legal framework and tax audit practices in the Czech Republic.
The Czech Republic is witnessing a growing acknowledgment of transfer pricing significance, resulting in increased scrutiny of related party transactions during tax audits. Czech transfer pricing legislation applies to both domestic and cross-border transactions and closely follows the arm’s length principle outlined in the OECD Guidelines. This legislation is critical in assessing a taxpayer’s tax base adjustment for any related party transaction deviating from market terms.
While the Czech Republic’s transfer pricing rules align with OECD guidelines, they aren’t legally binding. The Ministry of Finance has introduced updates in line with the 2010 OECD Transfer Pricing Guidelines. Various decrees, such as D-332, D-333, and D-334, govern international standards, advance pricing agreements, and documentation. The Czech tax administration’s approach includes monitoring transfer pricing practices for both large and smaller entities.
The Czech tax legislation identifies related parties based on direct or indirect participation in management, control, or capital. Even commercial relationships established to reduce the tax base or increase losses fall under this definition.
Documentation related to transfer pricing has evolved in the Czech Republic. Guidelines emphasize adherence to the OECD Guidelines and Vienna Convention Article 31 for interpreting international agreements. Transfer pricing principles also guide domestic transactions.
While there are no specific transfer pricing regulations for record-keeping, rules from other disciplines, like corporate income taxes and accounting, apply. In case of successful challenges by tax authorities, penalties and interest charges apply, making compliance crucial.
Manage your compliances in real time, and stay in control of your global documentation deadlines and workflows.
