Czech Republic: Information from the General Financial Directorate on the transfer pricing implications of the COVID-19 pandemic

published on 1 May 2021 | reading time approx. 3 minutes

On 31 March 2021, the General Financial Directorate issued Information on the Impact of the Covid-19 pandemic on transfer pricing. The Information constitutes accompanying information in respect of the Guidance issued by the Organization for Economic Cooperation and Development (OECD) dated 18 December 2020, which addresses the impact of the pandemic on transfer pricing. Concurrently with such Information, the General Financial Directorate also published a Czech translation of the OECD Guideline on its website.

The General Financial Directorate (GFD) also mentioned that the OECD Guideline does not go beyond the framework of the OECD Guidelines on Transfer Pricing but focuses on the application of the principles set forth in the Guidelines to issues associated with the present pandemic. Mention was also made of the fact that GFD Instruction D-34 continues to be in effect during the pandemic.

The main areas covered by the OECD Guideline pertain to the performance of comparability analysis, losses and allocation of Covid-19 specific losses in relation to a given company’s functional and risk profile, government assistance programmes and the issue of reflecting their impacts on how transfer prices are set and on advance pricing agreements, as well as the validity thereof during the Covid-19 pandemic.

In its Information, the GFD emphasized the need to assess the specific circumstances of a given case on an individual basis. It recommended that companies need to carefully document the impact of the pandemic on their economic activities and set transfer prices properly, as well as to document other impacts on their activities during the Covid-19 pandemic.

On a general level, companies need to follow a consistent methodological approach before the Covid-19 pandemic and during the pandemic. Any losses sustained at ordinary companies must be based on how functions and risks were specifically set within the group, they must be carefully justified and quantified. Whenever it is possible to do so in practice, one needs to apply the principle of how independent parties would behave under similar conditions (i.e. arm’s length basis).