CZECH REPUBLIC Law and Practice Contributed by: Petr Mlejnek, Robert Klenka, Matěj Manderla, Jan Wagner, Ivo Hartmann and Arbër Balliu, Tenacta, advokátní kancelář, s.r.o.
rable conditions. If the pricing deviates from market conditions and the taxpayer cannot properly justify the difference, the Czech tax authorities may adjust the taxpayer’s taxable income accordingly. Related-party transactions commonly subject to transfer pricing scrutiny include intercompany financ - ing, management and support services, licensing arrangements, supply and distribution transactions, business restructurings, and transfers of intangible assets. Transfer pricing rules apply not only to multi - national groups but also to domestic group structures. Although Czech legislation does not generally impose a universal statutory obligation to prepare transfer pricing documentation, taxpayers are expected to maintain sufficient supporting documentation dem - onstrating compliance with the arm’s-length principle. In practice, tax authorities frequently request trans - fer pricing documentation during tax audits. Czech practice generally follows the OECD-recommended master file and local file approach. The Czech tax authorities actively focus on transfer pricing audits, particularly in cases involving recur - ring losses, low-profit entities, significant related-party financing, or transactions with entities located in low- tax jurisdictions. Penalties, late-payment interest, and additional tax assessments may arise where transfer prices are considered inconsistent with market condi - tions. 5.7 Anti-Evasion Rules Tax authorities in the Czech Republic possess broad powers to review compliance with tax obligations and to verify the accuracy of tax reporting. The principal authority responsible for tax administration is the Financial Administration of the Czech Republic. Tax authorities may conduct various forms of review, including: • routine tax inspections; • targeted tax audits;
Tax audits may focus on a wide range of issues, including: • corporate income tax calculations; • VAT compliance; • transfer pricing arrangements; • deductibility of expenses; • withholding tax obligations; and • cross-border transactions. Where tax authorities identify deficiencies, they may impose: • additional tax assessments; • penalties; Taxpayers generally have procedural rights during tax proceedings and may provide explanations, evidence and supporting documentation. Disputes with tax authorities may be challenged through administrative procedures and judicial review mechanisms. The dispute process commonly involves: • administrative objections; • appeals; • proceedings before regional administrative courts; and • review by the Supreme Administrative Court. 5.8 Tariffs The Czech Republic does not operate an independent national tariff regime. As a member state of the Euro - pean Union, it forms part of the EU Customs Union and applies the Common Customs Tariff established at the EU level. Consequently, customs duties and trade measures are determined primarily by European legislation rather than domestic law. • late payment interest; and • administrative sanctions. Goods imported from countries outside the European Union may be subject to customs duties depending on factors including: • classification of goods;
• requests for explanations; and • reviews of specific transactions.
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