23rd November 2018

BEPS and Transfer Pricing roundtable with Vitezslav Kapoun

As a member, the Czech Republic implemented the transfer pricing (TP) principles into its tax system by Guidance D332 of the Ministry of Finance which are recommendable to follow. There is no legal obligation to prepare Transfer Pricing documentation in the Czech Republic and is unlikely to become mandatory any time soon in near future. 

TP is included in BEPS Action Plan, actions 8-10 and 13. Actions 8 – 10 contain TP guidance which assures that TP outcomes are in line with value creation. Particularly, Action 8 addresses intangibles and their assessment, Action 9 addresses risks and capital – correct allocation of profit in regard to business risk distribution and decision responsibility and Action 10 addresses other high-risk transactions.

Action 13 introduces recommendation to implement mandatory TP documentation and more transparency in order to share information among all financial authorities to avoid information asymmetries as much as possible. According to the action, the documentation should be done in three parts: Master File, Local File, Country-by-Country Reporting.

Country-by-Country Reporting provides a template for multinational enterprises to report annually and for each tax authority area in which they do business the information set out. The companies with a turnover of more than EUR 50 million will provide the tables with clear information e.g. in which country the assets are being carried out etc., to the financial authority where the parent company is located. This information is then to be passed to other financial authorities in other relevant countries.

According to BEPS report, the risk cannot be contractually transferred to an enterprise that lacks the capability, or does not perform the decision-making functions, or does not control the risk associated with investing in a financial asset. It will be then entitled to no more than a risk-free return as an appropriate measure of the profits it is entitled to retain.

For the first time, there is a definition of intangibles which are not tangible or financial assets, and are different from intangible assets as understood in accounting; it can be owned or controlled for business purposes, and its use or transfer would be a subject to payment among independent companies. The document will also include definition of a contract manufacturer, a full-fledged manufacturer, an agent, a contract distributor, a full-fledged distributor.

Guidance D332 will be amended by the new guidance D34 to enter into force in early 2019. D34 will incorporate BEPS and the points previously missing in the document such as benchmark analysis and more elaborated function-risk analysis, which represents a cornerstone of TP.

Other documents of transnational organizations on transfer pricing are EUJTPF – one of the recommendations prepared by the joint transfer pricing forum – the Report on the Use of Comparables in the EU; OECD – Addressing Difficulties in Accessing Comparables Data for Transfer Pricing Analysis; OECD – Guidance on the application of the transactional profit split method – 7/2018.

See the presentation in Czech attached.


Members of the American Chamber of Commerce in the Czech Republic