The General Financial Directorate (“GFD“) recently published a press release on transfer pricing.
According to the Financial Administration, multinational groups in the Czech Republic are more frequently applying complex transfer pricing strategies in order to reduce their tax liabilities. These situations, which often involve fictitious or under/overvalued transactions between the parent and subsidiary companies, significantly reduce the tax base in the Czech Republic and, as a result, income to the state budget. In addition to the relocation of the tax base to other jurisdictions, the balance in the competitive environment is also affected. Therefore, the Financial Administration is increasingly focusing on the transfer pricing area, resulting in more frequent and detailed audits by the tax authorities. The following chart presents the statistics of tax audits of transfer pricing in the Czech Republic in the past years.
| Year | Number of completed transfer pricing tax investigations | Tax assessed
(CZK million) |
Tax base increase
(CZK million) |
Tax loss reduction
(CZK million) |
| 2020 | 249 | 1,362 | 7,010 | 851 |
| 2021 | 437 | 605 | 2,529 | 908 |
| 2022 | 614 | 1,039 | 4,784 | 1,114 |
| 2023 | 570 | 724 | 5,808 | 1,169 |
Source: Financial Administration
The reasons for subsequent assessments of tax in transfer pricing are, for example, the company’s inability to provide sufficient evidence of tax deductibility of the costs of received intra-group services as required by the tax authorities, i.e. (i) the scope of the services provided, (ii) the resulting benefit and (iii) that the related fees were not under/overstated. The Financial Administration also states that they are currently focusing on the resale of advertising services and the re-licensing of intangible assets to their original owner.
This issue not only affects manufacturing companies, but nearly all sectors. The key determinant is whether the company makes transactions with a related party, which may be both cross-border and domestic transactions.
If you conduct transactions with related parties, we recommend checking the transfer pricing settings to avoid potential complications during tax audits. Based on our experience, we recommend having transfer pricing documentation prepared and following it. Although Czech legislation does not require taxpayers to have transfer pricing documentation (unlike, for example, Slovakia and other neighbouring countries), having it available during a tax audit is a significant advantage.
