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Czech Republic: New instructions for related-party transactions, transfer pricing guidelines

Czech Republic: Related-party transactions

The procedures to determine tax bases affected by transactions between related parties—both domestic and cross-border transactions—are being unified.


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In Financial Bulletin 5/2019, the General Financial Directorate (GFD) published Instruction D-34 (Czech) [PDF 711 KB]. It replaces existing Instruction D-332 on applying international standards in the taxation of transactions between related parties or associated enterprises.

At the same time, a Czech translation of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations (July 2017) was published.

New Instruction D034 addresses the following issues, among others:

  • The arm’s length principle and its regulation in Czech laws, comparative analyses (benchmarking), and factors determining comparability recommendations, how to proceed with comparative analyses, description of methods to determine transfer prices and their use in practice.
  • The opening part of the instruction deals with transfer pricing in general, mainly its codification and referring to the revised OECD Transfer Pricing Guidelines of 2017. The instruction also mentions the base erosion and profit sharing (BEPS) project (2015) as a basis for analyses.
  • The basis for application of the arm’s length principles is the comparison of conditions in a related-party transaction to those in an unrelated (independent) transaction. According to the tax authorities, any business relationship between related parties or associated enterprises—including a parent company’s instruction resulting in a taxpayer’s loss—will be considered a related-party transaction.

With the instruction, special attention is paid to the value chain and to risk and functional analyses. A relevant analysis would determine the profile of the enterprise under review, and subsequently the distribution of profits depending on where in the chain of enterprises the value is created.

The instruction includes more detailed recommendations on preparing comparative analyses (benchmarks), including a recommended updating interval—a new analysis is to be prepared every three years, while a review of the independence and profitability of selected unrelated enterprises would be conducted on an annual basis. As per common practice, multiple-year data (usually for three to five years) would be used to determine market ranges. 

KPMG observation

Taxpayers need to consider preparing a full-scope transfer pricing documentation that meets all the above recommendations—in particular, if the taxpayer is not certain whether the present documentation complies with Instruction D-34.

Read a July 2019 report prepared by the KPMG member firm in the Czech Republic 

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