Current practice in transfer prices
As we informed you in our March issue, from the tax administrator’s perspective, 2014 is marked by an increase in the emphasis on transfer pricing issues.
The Financial Administration has already implemented its pilot project and started to collect completed questionnaires on transfer prices from selected taxpayers. The next step is to introduce a new Annex to the Income Tax Return for 2014, including an overview of related party transactions. Tax administrators are even considering addressing selected entities with a request to fill in the attachment retrospectively for 2013. The attachment will be filled in by a taxpayer who meets at least one of the following criteria:
- assets exceeding CZK 40 million;
- net turnover of more than CZK 80 million;
- average recalculated number of employees more than 50.
And if the taxpayer:
- has made a transaction with a related party resident abroad; or
- reported a loss in the return and simultaneously made a transaction with a (Czech or foreign) related party; or
- holds a promise of an investment incentive in the form of a tax credit and at the same time has made a transaction with a related party.
If a company records a loss or holds a promise of investment incentives, the company must complete a separate attachment for all related parties to whom the transactions relate. In other cases, it will only mention foreign transactions.
Tax administrators will use these data for more efficient planning of tax control in transfer prices. We therefore recommend not to underestimate the value of preparation. Possible additional processing of the documentation in response to the initiation of an inspection is often more time-consuming and expensive and there is a risk of a negative result. Conversely, forward-looking documentation based on the same principles which tax administrators apply is a good basis for success and for minimising the risks of significant excesses.
In this context, it is necessary to draw attention to an amendment valid from 2014, which transferred the burden of proof in transfer prices from the tax administrator to the taxpayer. Therefore, we encourage you to discuss this complex and challenging issue with us in advance.
Author: Robert Jurka