1. In your jurisdiction, are taxpayers obliged to maintain transfer pricing documentation? Does this obligation apply to all taxpayers, or only to certain categories (e.g. taxpayers with turnover or assets exceeding a particular threshold)?
Transfer pricing documentation is not compulsory in Czech law. Of course associated enterprise transactions must be carried out according to the arm’s length principle for income tax purposes. Taxpayers can use the transfer pricing documentation described in the OECD guideline, or the EUTPD, or other proof and documents.
Taxpayers can ask the tax authorities for a binding ruling regarding transfer prices for related-party transactions. Based on this binding ruling, taxpayers can get confirmation that the prices agreed between associated enterprises comply with the arm’s length principle.
2. What is the content of the documentation that must be prepared?
a) Which transactions must be documented (all transactions with associated enterprises, or only those which exceed a particular threshold)?
The taxpayer is obliged to document all transactions between associated enterprises. There are no limitations.
b) What is the definition of “associated enterprises” for the purposes of this requirement?
In Czech law the definition of “associated enterprises” is as follows:
- Parties related through capital:
- One person or party directly or indirectly participates in the capital or voting rights of the other and has a holding of at least 25%
- Parties related otherwise than through capital:
- One person or party participates in the management or control of another person or party;
- There is a controlling person or party and a controlled person or party, or more than one person or party with the same controlling person or party;
- Close parties;
- Persons or parties which have established a legal relationship predominantly for the purpose of reducing their tax base or increasing their tax loss.
c) For EU countries, is the content of the documentation similar to that described in the EU Code of Conduct on transfer pricing documentation for associated enterprises (“EU TPD”)? If not, are taxpayers entitled to choose between the local requirements and the EU TPD?
In Czech law there are no specific requirements for transfer pricing documentation. If the taxpayer decides to prepare the documentation according to the EUTPD, Czech tax authorities must accept the regulations of EUTPD. If not, there are no special requirements for transfer pricing documentation and the taxpayer can use any documents. On the other hand, the tax authorities are entitled to judge all documents at their discretion.
d) Do taxpayers which are not established in your jurisdiction need to undertake to provide any specific information upon request? Can your tax authorities require the taxpayer in your jurisdiction to provide information which is located in another state?
Under Czech law, the tax authority has a general right to ask for information from any person who may have relevant knowledge, being knowledge related to the case under consideration within the tax procedure. If the taxpayer uses the EUTPD, he must explicitly agree to provide information to the tax authorities.
e) If comparable studies are to be provided, do the tax authorities generally accept regional benchmark studies (e.g. pan-European benchmark studies)?
Such studies are not compulsory.
f) What language(s) are to be used by taxpayers in submitting the transfer pricing documentation?
The language of the documentation is not directly prescribed. Czech tax authorities accept Czech or Slovak language documents; in the case of other foreign languages they can ask for a translation of some parts or even the whole of the documentation.
3. What is the deadline or timescale for providing transfer pricing documentation to the tax authorities (is it to be provided for example upon filing of the tax returns, at the beginning of a tax audit, or on the specific request of the tax authorities)?
The deadline to provide the documentation is upon specific request from the tax authorities.
4. In the event that the documentation is not provided within the applicable timescale, or is incomplete, do documentation-related penalties apply in your jurisdiction? If so, please detail the penalties and the circumstances in which they do and do not apply.
In Czech law there are no special documentation-related penalties. In the event that the prices agreed between associated enterprises differ from the prices used by independent parties, without such difference being properly documented, the tax authorities shall adjust the tax base by the difference. Czech tax authorities then assess a penalty on additional tax.
5. Does the absence or incompleteness of documentation reverse the burden of the proof as regards the arm’s length character of the transactions?
No, since there is no compulsory documentation.
6. In the event that the tax authorities (i) impose documentation-related penalties and (ii) make a transfer pricing reassessment, does the imposition of documentation-related penalties prevent the taxpayer from initiating any mutual agreement procedure which may be contained in an applicable tax treaty (or, for EU countries, the procedure contained in the EU Arbitration Convention) with a view to eliminating any double taxation resulting from the transfer pricing reassessment?