Czech RepublicCzech Republic

Legal ReferenceThe Czech Income Tax Act 586/1992 Coll., Section 23 para 7

The OECD Transfer Pricing Guidelines (TPG) are a source of interpretation and binding for domestic and international transactions. The reference to the OECD TPG is in on Guidance D-59. It is the methodological explanation of the Income Tax Act generally used by taxpayers and binding for tax administration.

Legal ReferenceThe Czech Income Tax Act 586/1992 Coll., Section 23 para 7

Persons associated through capital: 1. where one person directly participates in the capital or voting rights of the other person, or where one person directly participates in the capital or voting rights of several persons; and where, simultaneously, this share constitutes at least 25 % of the registered capital or 25 % of the voting rights of such persons, then all such persons are persons directly mutually associated through capital, 2. where one person indirectly participates in the capital or voting rights of the other person or where one person directly or indirectly participates in the capital or voting rights of several persons; and where, simultaneously, this share constitutes at least 25 % of the registered capital or 25 % of the voting rights of such persons, then all such persons are persons mutually associated through capital, b) persons otherwise associated which are persons 1. where one person participates in the management or control of another person, 2. where identical persons or close persons participate in the management or control of other persons, then such other persons are persons otherwise mutually associated. Persons otherwise associated shall not be deemed to be persons where one person is a member of the supervisory boards of two persons, 3. controlling and controlled and also persons controlled by the same controlling person, 4. related persons, [as defined in Civil Code, e.g. relatives in the direct line, siblings, spouse, persons related by marriage, or persons who live together permanently] 5. that created a legal relationship predominantly for the purpose of reducing a tax base or increasing a tax loss.

Legal ReferenceGuideline GFŘ D-34

Czech domestic provisions are consistent with the TPG and use the same transfer pricing methods. The methods themselves are incorporated into the binding methodological guidelines, not in the Act itself. See answer to question 2. Other method may be used if none of the five TP methods can be applied. This other method must be based on logical and rational reasoning.

• CUP (provided)
• Resale Price (provided)
• Cost Plus (provided)
• TNMM (provided)
• Profit Split (provided)
• Other (provided)

Czech domestic legislation is consistent with the TPG transfer pricing methods.

• Hierarchy of methods (not selected)
• Most appropriate method (selected)

OECD TPG guidance is followed even though there is no specific legislation or regulation.

Czech domestic legislation is consistent with Chapter III of the TPG.

Legal ReferenceGuideline GFŘ D-34

Guideline GFŘ D-34 establishes the preference for domestic comparables. However, in some cases, there is not enough independent comparable data within the Czech Republic and therefore transactions that take place outside of the Czech Republic can also be accepted as comparables.

The tax administration must acquaint the taxpayer with all evidence that is used in tax proceedings, this evidence must be reviewable by the court.

Czech domestic legislation is consistent with Chapter I of the TPG.

Czech domestic legislation is consistent with the TPG.

The tax administration follows the guidance in Chapter VI of the TPG.

No, Chapter I and VI are used for the transaction falling within the scope of the HTVI.

There is no specific statute of limitations.

Czech Republic provides training for tax auditors (systematic training on transfer pricing are organized four times a year) and holds methodological meetings twice a year on current TP topics with tax officials who specialize in transfer pricing.

Legal ReferenceGuidance GFD D-10 on low value-added services provided between related parties/associated enterprises

The Czech Tax Act has special provision to limit interest deduction according BEPS Action 4 in Section 23e.

Legal ReferenceMinistry of Finance Guidance D-334 on the scope of documentation of pricing methods between related parties

Master File and Local File is not currently regulated by law, but only Ministry of Finance recommends having them in the Guidance D-334 according to the TPG. CbC report is regulated since 2017 by the Act 164/2013, with the amendment No.: 305/2017. Multinational groups that qualify for CbCR publish their reports within 12 months of the end of the reporting accounting period of the multinational group of companies.

Legal ReferenceAct no. 164/2013 Coll. Section 13zp

A penalty may be applied for non-submission of the CbCR based on the Czech law. Section 13zp Fines: (1) The tax administrator may also impose a fine on the Czech member entity of a multinational group of enterprises for failure to fulfil an obligation of a non-monetary nature if it breaches the obligation a) to keep documents, b) to request the ultimate parent entity of such a group for assistance. (2) The tax administrator may impose a disciplinary fine up to CZK 1 500 000 on the Czech member entity of a multinational group of enterprises which is the ultimate parent entity of such a group if such an entity breaches an obligation in reporting. (3) The tax administrator may impose a disciplinary fine up to CZK 1 500 000 on the Czech member entity of a multinational group of enterprises which is the representative entity of such a group if such an entity breaches an obligation in reporting. (4) The tax administrator may impose a disciplinary fine up to CZK 600 000 on the Czech member entity of a multinational group of enterprises if it breaches an obligation in reporting. (5) A disciplinary fine under Subsection 4 may not be imposed on the Czech member entity of a multinational group of enterprises which a) proves that it has not obtained or received from the ultimate parent entity of such a group the information which is necessary for the fulfilment of the obligation to submit the country-by-country report for such a group, although such information was requested from such an ultimate parent entity, b) states, in the country-by-country report for such a group, all the information that is available to it and that was obtained or received by it, and c) states in the report that the ultimate parent entity of such a group refused to provide assistance to it.

Legal ReferenceCzechia's MAP Profile

Domestic APA is regulated by the provision of 38nc and 38nd of the Czech Income Tax Act. MAP is regulated by Double Tax Treaty, by Arbitration Convention or by the Act no. 335/2020 implementing EU Directive 2017/1852 on 22.7.2020. For further information, see Czech Republic’s OECD MAP profile.

• Rulings (selected)
• Enhanced engagement or cooperative compliance programmes (not selected)
• Advance Pricing Agreements (APA) (selected)
• Unilateral APAs (selected)
• Bilateral APAs (selected)
• Multilateral APAs (selected)
• International Compliance Assurance Programme (ICAP) (not selected)
• Mutual Agreement Procedures (selected)

Czechia has a political commitment to accept Amount B if it is used by a covered jurisdiction, through a bilateral agreement between the competent authorities.

• N/A (selected)

• N/A (selected)

• Article 7 as it read before 2010. (selected)
• Article 7 as it reads after 2010. (not selected)

Double tax treaties concluded by the Czech Republic have Article 7 in the wording of the Model OECD Convention of 2008 – non-AOA approach. Despite the fact that the AOA approach is not applied, it is possible to make an adjustment of the profit after the end of the taxation period in order to provide a true picture (a fair value of profit) respecting the real situation (functions and risks borne by the individual parts of the company (PEs) and the company itself).

Legal ReferenceCzech Income Tax Act 586/1992 Coll., Section 23 para 11; Methodical Instruction on the Procedure for Taxation of Income of Tax Non-Residents from Activities Carried out through a Permanent Establishment no. 79599/19 from 17.12.2019

Main features are specified in the Czech Income Tax Act 586/1992 Coll., Section 23 para 11, which is worded as follows: (11) For a permanent establishment (Section 22 Subsection 2), the tax base may not be lower or the tax loss higher than the base or loss that would be reached from the same or similar activity performed under similar conditions by a payer with its registered office or residence in the territory of the Czech Republic. For determining such fact, it is possible to use the proportion of the profit or loss to the costs or gross income of comparable payers or activities, a comparable amount of trade margin (commission), and other comparable data. It is also possible to use the method of distributing the total profit or loss of the establisher of the permanent establishment between/among its parts. Some rules are also in Methodical Instruction on the Procedure for Taxation of Income of Tax Non-Residents from Activities Carried out through a Permanent Establishment no. 79599/19 from 17.12.2019. The Czech Republic does not invoice management fees, licence fees and interests (except banks) between the enterprise and its PE. However, interests and licence fees paid to third parties can be attributed to a PE if they are connected to the PE’s activities. The business results of a PE must be at arm’s length and adjustments can be made to the PE’s accounts to reflect arm’s length results.