Czech Republic

  1. In your jurisdiction, what are the legal bases for eliminating double taxation further to a transfer pricing reassessment (European Arbitration Convention, mutual agreement procedures provided for by tax treaties)? In addition to the procedures set forth by such tax treaties, is there any other (formal or informal) domestic procedure in your jurisdiction?
  2. In addition – as the case may be – to the European Arbitration Convention, did your jurisdiction sign tax treaties with other States including an arbitration procedure? If yes, can you give the list of such States?
  3. In your experience, in your jurisdiction, how long does it take generally to eliminate the double taxation under the European Arbitration Convention and/or mutual agreement procedures set forth by tax treaties (and/or the domestic procedure if it exists)?
  4. In your jurisdiction, what are the starting point and time limit to initiate a procedure to eliminate double taxation resulting from a transfer pricing reassessment?
  5. If a reassessment is issued by your tax authorities, which State must receive the application for the international procedure to eliminate double taxation 1 The terms “international procedure to eliminate double taxation” mean the European Arbitration Convention or a mutual agreement procedure set forth by a tax treaty. (your State? the other State concerned? both States?)
  6. What are the formal conditions to initiate an international procedure to eliminate double taxation? Is there a list of documents to provide? To which department of the tax authorities (name, address) must the request be sent?
  7. In which cases would the competent authority of your jurisdiction refuse to engage/participate to the international procedure to eliminate double taxation?
  8. Is tax collection suspended during the procedure?
  9. Assuming the procedure results in an agreement on a way to cancel double taxation, how is generally such agreement implemented in your jurisdiction?
  10. In your jurisdiction, is it possible to engage concomitantly an international procedure to eliminate double taxation and litigation in front of courts? If yes, is it necessary at some stage to abandon the litigation in order to conclude/finalize the international procedure?

There are two legal bases in Czech Republic: the European Arbitration Convention and mutual agreement procedures provided for by double tax treaties.

Czech Republic has concluded only 10 double tax treaties with mutual agreement procedures.

2. In addition – as the case may be – to the European Arbitration Convention, did your jurisdiction sign tax treaties with other States including an arbitration procedure? If yes, can you give the list of such States?

Czech Republic has not concluded any double tax treaty including article 25 paragraph 5 of the OECD Model Tax Convention relating to arbitration procedure.

3. In your experience, in your jurisdiction, how long does it take generally to eliminate the double taxation under the European Arbitration Convention and/or mutual agreement procedures set forth by tax treaties (and/or the domestic procedure if it exists)?

Czech Republic had 14 pending cases in 2014. The process takes approximately two years.

4. In your jurisdiction, what are the starting point and time limit to initiate a procedure to eliminate double taxation resulting from a transfer pricing reassessment?

The starting point to initiate a procedure is the notification of the reassessment. The procedure must be initiated no later than three years after the reassessment is issued. The three-year time limit is generally provided for by the tax treaty. If not, the same time limit will be used.

The advisable time for initiating the procedure is immediately after the notification is received by the taxpayer.

5. If a reassessment is issued by your tax authorities, which State must receive the application for the international procedure to eliminate double taxation 1 The terms “international procedure to eliminate double taxation” mean the European Arbitration Convention or a mutual agreement procedure set forth by a tax treaty. (your State? the other State concerned? both States?)

Czech Republic has no domestic law or guidelines in that respect: all variants are therefore possible.

6. What are the formal conditions to initiate an international procedure to eliminate double taxation? Is there a list of documents to provide? To which department of the tax authorities (name, address) must the request be sent?

Czech Republic has no guideline in this respect.

Czech Ministry of finance will be involved in negotiations with foreign tax authorities.

7. In which cases would the competent authority of your jurisdiction refuse to engage/participate to the international procedure to eliminate double taxation?

Czech tax authorities will only open a procedure should the case involve another EU country or one of the 10 countries which double tax treaties provide for a mutual agreement procedure (see point 1 above).

With respect to the scope of the European Arbitration Convention, Czech domestic tax law considers as a transfer pricing issue all situations in which the arm´s length principle is at stake.

Furthermore, Czech tax authorities may reject requests for mutual agreement procedures under the European Arbitration Convention should the reassessment be based on a breach of domestic anti-abuse rules. In particular, Czech Tax authorities may reject requests if the taxpayer is subject to a “serious penalty” (i.e. subject to detention, criminal or administrative fines) for one of the following infringement of the tax laws:

  • failing to pay the charged taxes, social insurance taxes, health insurance taxes and fees for state employment policy;
  • tax or similar payment evasion;
  • failure to declare.

8. Is tax collection suspended during the procedure?

Tax collection is not suspended during the international procedure.

9. Assuming the procedure results in an agreement on a way to cancel double taxation, how is generally such agreement implemented in your jurisdiction?

Correlative adjustments are generally performed over the years reassessed in Republic Czech or in the other State. No interest is paid to the taxpayer where the procedure leads to a decrease of the Czech tax bill.

Transfer pricing reassessment can give rise to the application of a withholding tax in Czech Republic, but not in the case of intragroup flows with EU countries, Norway, Island and Switzerland.

It is not possible to obtain the cancellation of withholding tax via a “reimbursement” of the profits transferred abroad by the company which benefited from the transfer.

10. In your jurisdiction, is it possible to engage concomitantly an international procedure to eliminate double taxation and litigation in front of courts? If yes, is it necessary at some stage to abandon the litigation in order to conclude/finalize the international procedure?

If there is no risk of limitation for all parties (for example Article 9 paragraph 3 of the DTT with Spain, Finland and Canada), it is advisable not to initiate a MAP as long as litigation is pending in front of the courts.

Authors

Radko Matyáš
CCS Consulting