Disclosure of transactions with affiliated entities

Czech Republic: Mandatory disclosure of transactions with affiliated entities already as of the 2014 assessment period

The introduction of a new schedule to the corporate income tax return is being anticipated for the 2014 assessment period. Selected companies engaging in transactions with affiliated entities will have to fill in a special schedule to provide information on these transactions as a part of their corporate income tax return. “Affiliated entity” here stands for any natural person or legal entity that is in any way connected to the taxpayer in economic terms, in terms of personnel, or otherwise. This is essentially a new disclosure duty aimed at the systematic collection of detailed intelligence which the Czech tax administration will be able to use to identify businesses at which to conduct a tax audit in the area of transfer pricing.

The schedule will have to be filled in by any legal entity (other than financial institutions) which meets at least one of the following criteria:
– net asset value in excess of CZK 40 million, or
– net turnover in excess of CZK 80 million, or
– an average number of staff (converted to full-time employees) of more than 50.

If that entity:
– engaged in transactions with an affiliated entity whose seat is abroad, or
– reported loss in its tax return and at the same time engaged in transactions with an affiliated entity, or
– has been awarded investment incentives in the form of tax breaks and at the same time engaged in transactions with an affiliated entity.

According to the currently available information, the schedule is going to require the identification of the affiliated entity (by name and country of establishment) and information on the transaction volume. Our experiences indicate that the finance offices increasingly focus on the area of transfer pricing. If you are interested, we will gladly carry out an analysis at your firm to identify and assess the transfer pricing risks to which you may be exposed.

Source: Czech Ministry of Finance

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