Financial institutions are newly requested to file the transfer pricing appendix to the corporate income tax return already for FY 2017. Do you know what the appendix includes and what are the exceptions?
So far an exception from the obligation to file the Appendix to the tax return applied, among others, to the following types of companies:
The Appendix includes an overview of the intercompany transactions performed with respect to sale and purchase of assets, mutually-provided intercompany services and other intangible supplies, financial transactions and overview of payables/receivables. Contrarily to other entities, certain exceptions apply to financial institutions, such as not having to complete several specific items such as the sales and purchases of material, products and goods (Line 4 in Table A), the use of cash-pooling (Line 6 in in Table C) and short-term payables and receivables (Lines 3,4 in Table D).
As the practice over the years during which the Taxation Authority has been using the Appendix to the tax return has shown, the information gained on intercompany transactions has become an integral part of the process in selecting entities for tax audits focused on transfer pricing issues. As expected, the Taxation Authority performs a risk analysis of companies based on the data received. In combination with publicly-available sources and information from prior tax proceedings, the analysis helps the Taxation Authority to gain initial insight into a company’s position within a group, and thus to define more particularly the areas of closer scrutiny.
Since 2014, we have seen a series of “waves” of initiated tax proceedings, both in the form of local inspections and tax audits, the subject of which was principally transfer pricing. As such, it can be anticipated that now this wave will also concern financial institutions, which are centrally administered by the Specialised Tax Office.
In addition, we noted that starting from 2018, the Taxation Authority plans to complement the information gained from local resources by data gained through the international exchange of information, specifically from Country-by-Country Reports. As such, in addition to information on particular Czech companies’ activities, Country-by-Country reports provide an overview of how multinational groups of companies work as a whole from the global perspective.
Among other things, these reports highlight the locations in which groups operate, what particular activities are performed in individual countries, where major profits are generated, what the group actual taxation is in individual countries, and the like. In this way, for the first time the Czech Taxation Authority will be able to assess information on particular taxable entities, which was only unilateral so far, in the context of the whole multinational group’s operations. The degree to which the Taxation Authorities succeed in combining the data resources and what particular impact this will have on taxable entities will show in the coming years.
The latest Appendix version for FY 2017 including the completion instructions is available here.
Seminars, webcasts, business breakfasts and other events organized by Deloitte.
