New Tax administration activities in transfer pricing
Tax cases of leading companies such as Apple, Google and Starbucks have fuelled the debate in the European Union over the need to actively fight wrongly set prices for goods, services, licenses, etc. that are billed within companies of one group (so-called transfer pricing).
Recently, Czech Tax administrators have also been verifying taxpayers more often with regard to whether they have correctly set invoiced prices between related entities. What steps can be expected in the near future by the Czech financial administration in this area?
- an increased number of tax audits within taxpayers with a focus on transfer pricing and higher tax collection from these prices,
- the distribution of a questionnaire to selected taxpayers about transactions undertaken between related parties.
In 2010 – 2011 only, the number of tax audits aimed directly at transfer prices in the Czech Republic increased by about 40 percent, and in 2013 almost every second check on tax on corporate income tax was for medium-sized and larger companies engaged in transfer pricing. For 2014, we expect a further increase in these controls. The Director of the Tax Policy Strategy of the Ministry of Finance, Mr. Zdeněk Hrdlička, in an interview with Hospodářské noviny in January, 2014, stated that the State soon plans to collect up to 5 billion CZK extra per year by controlling transfer pricing better. As seen in 2012, the adjustment of the tax based on controls of transfer pricing came to 20 million CZK and the tax loss was reduced by 149 million CZK.
The preparation of the transfer pricing questionnaire is a pilot project of the Tax administration in the area of transfer pricing and will be distributed to selected taxpayers within the context of tax inspections soon. It will then probably be sent nationwide as part of an open and transparent approach between the tax entity and tax authority. One of the questions in the questionnaire will detect whether the taxpayer has, or has not, prepared the documentation for transfer prices.
Transfer pricing is a very complex tax area, therefore, we recommend you to personally discuss the preparation, or update of the transfer pricing documentation, with your tax advisor.
Author: Robert Jurka