Czech Republic: Transfer pricing continues to be a priority for tax audits

published on 1 May 2021 | reading time approx. 2 minutes

In a joint press release, the Ministry of Finance and the Financial Administration published information on tax audits that were performed and that focused on transactions between related parties. The press release indicates that between 2014 and 2019, the Financial Administration conducted a total of 2,182 tax audits pertaining to transfer pricing. Such audits resulted in supplementary income tax assessments totalling CZK 3.2 billion and an increase in the tax base of the audited taxable entities of CZK 39 billion.

Comparable information for 2020 should be published by the Financial Administration during May, but according to the press release, the results for 2020 already confirm the trend witnessed during the past few years. Statistics indicate that the year 2018 set a record. In that year, supplementary income tax totalling CZK 1.2 billion was assessed and the tax authorities raised the tax base of the audited entities (including reductions of allowable tax losses) to the tune of CZK 18 billion.

In the aforementioned press release it is clearly stated that transfer pricing is viewed as a high risk area. The Minister of Finance stated, among other things, that in addition to bringing more revenue to the state treasury, the focus on transfer pricing is also aimed at discouraging future transgressions in this area and encouraging companies to behave.

It is quite evident from the above that a change in this trend (of increased attention on transfer pricing) cannot be expected. In fact, this trend is likely to continue; transfer pricing will continue to be a priority for the tax authorities and there will be even more tax audits focusing on this area.