Transfer Pricing

Transfer Pricing

Transfer pricing is a major issue for all companies today. Transactions within groups of multinational or local companies significantly affect the results and thus the tax liabilities of the individual entities. This is an area that is highly monitored by the Czech tax administration. If the transfer prices are insufficiently documented, the audit can become a very lengthy and unpleasant process that can result in tax assessments, penalties or interest on late payments.

In addition, the correct setting of transfer prices is not only a tax issue - on the one hand, it will help to protect the owner's assets and simplify flows within the group - on the other hand, the wrong setting can lead to a breach of due diligence and unlimited liability of the managing director.

Dependent transactions are not only transactions between related parties, but also so-called "parent company direction", which means the influence of an independent transaction by a related company, for example:

  • the parent company's decision to sell to independent customers at prices determined by the parent company,
  • the parent company's decision to source material only from independent suppliers approved by the parent company,

The tax administration is now placing increasing emphasis on documentation being prepared in as transactional a manner as possible. This means that each significant transaction should be subject to a separate test for compliance with the arm's length rules.

Our expert team has extensive experience in preparing transfer pricing documentation for medium and large domestic and international groups. We prepare the documentation in accordance with the OECD and Czech tax administration recommendations.

How can we help you?

Risk assessment and value chain optimization

  • Robust transfer pricing analysis by identifying key drivers of business profit and the main contributors to that value across the Group
  • Identifying the impact of business changes and business decisions on the value chain (e.g. new market entry, changes in ownership of intangible assets, etc.)
  • identification of weaknesses and preparation of a defending strategy

Preparation of documentation in line with beps requirements, country by country reporting

  • Benchmarking using the TP Catalyst database used by the FU during audits
  • Setting up intra-group transaction methodology and pricing - masterfile, local files, country by country reporting (CbCR), preparation of contracts
  • assisting in ensuring a binding assessment of the way in which the price negotiated between related parties has been established

Financing, debt structure and thin capitalization rules

  • Preparation of supporting documentation that can be used to support group positions when challenged by the tax authorities
  • Preparation of a comprehensive analysis to ensure that financing structures are complex and comply with the thin capitalization rules

Implementation and alignment of transfer pricing with overall corporate governance

  • Assisting in aligning transfer pricing policies with implementation and compliance processes to effectively manage transfer pricing risk and demonstrate sound corporate governance
  • Identifying potential risks and mitigating them while maintaining your business objectives

Dispute resolution and advance pricing agreements

  • representation in transfer pricing tax audits
  • Taking on the case and supporting the preparation of the claim and other necessary steps in the litigation process
  • Cooperation in international tax disputes
  • Assisting in the negotiation of Advanced Pricing Agreements (APAs)

Assisting in the resolution of settlement proceedings

  • Preparation of documents necessary for conciliation proceedings aimed at avoiding double taxation in the event that tax is assessed by a foreign tax authority

As part of our transfer pricing advisory services, we will be happy to help you set up your transactions to achieve optimal results from an economic and tax perspective. The advantage of transfer pricing documentation prepared by a specialist as a possible means of proof is that it fulfils the legal obligation to prove the claims made in the annex to the tax return concerning related party transactions. The burden of proving the existence of a difference in the price agreed between related parties from the price that would have been agreed between independent persons in normal commercial relations in such circumstances remains with the tax authorities.

Our experience

  • Transport and logistics

For a Czech holding company that offers complex logistics and warehousing services, we have compiled transfer pricing documentation, both at local file and master file level. In preparing the documentation of the foreign local entities belonging to the group, we worked with our network colleagues to ensure that the documentation complied with the requirements of the foreign tax authorities.

  • Metalworking industry

We represented a subsidiary of a German concern engaged in the production of functional components and assemblies from sheet metal during a tax audit. On the basis of very good cooperation with the client's controlling department, we managed to set up a system of transparent evaluation of the operating profitability of orders delivered both to the group and outside the group, which was accepted by the tax authorities.

  • Industrial production

We represented our long-standing client, active in the manufacturing of engines and propulsion systems, not only in a tax audit, but also in the subsequent court proceedings that we instigated. The result was a groundbreaking decision by the Supreme Administrative Court, which rejected in our client's favour the tax authorities' long-standing practice of so-called tax loss chaining.

  • Retail

For a foreign drugstore chain operating throughout Europe, we prepared transfer pricing documentation focusing on the cost of services, which, among other things, involves the risk of withholding tax for the right to use marketing intangible assets.

  • Timber industry

We represented a Czech subsidiary of an international group operating in the wood processing sector in an appeal to the Appellate Tax Directorate. The Appellate Tax Directorate upheld our objections concerning the procedure for compiling the comparative analysis using the TP Catalyst database.

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