Transfer pricing advisory in the Czech Republic

The preparation of transfer pricing documentation is becoming relevant for more and more companies. Although transfer pricing documentation is not mandatory in the Czech Republic, its preparation significantly strengthens the taxpayer's evidentiary position when dealing with the tax authorities.

Guidance for the taxpayer fulfilling the transfer pricing documentation obligation in the Czech Republic is the OECD Guidelines, implemented into the Czech tax system through Guideline D-334 of the Ministry of Finance. It specifies that transfer pricing documentation for related parties in the European Union, is the basis for the calculation of the arm's length price. Although these recommendations are not legally binding, the tax authorities often refer to them, so taxpayers also reach for these recommendations.

Transfer pricing documentation in Czechia – Who is covered by this obligation?

Although transfer pricing documentation is not mandatory in the Czech Republic, it is worth preparing it, and the Czech tax authority recommends preparing transfer pricing documentation on the basis of the D-334 guideline. Moreover, taxpayers meeting at least one of the following conditions are obliged to report information on transactions with related parties:

• whose total assets exceed CZK 40 million,
• with a net turnover in excess of CZK 80 million per annum,
• whose average number of employees exceeds 50 persons,

and if they also meet one of the following conditions:

• carry out transactions with related parties’ resident in another country,
• have a tax loss while carrying out transactions with a foreign and/or domestic related party,
• are recipients of a tax relief and simultaneously transact with a foreign and/or domestic related party.