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Fight against tax ‘optimisation’ – country-by-country reports starting to look clearer in the Czech Republic

The Czech Chamber of Deputies approved an amendment proposed by the government to the International Cooperation in Tax Administration Act. The bill introduces an obligation of country-by-country reporting (CBCR). What does CBCR involve? And what effect can it have on you?

On 12 July 2017, the Czech Chamber of Deputies approved in a third reading a government-proposed amendment to Act No. 164/2013 Sb., on International Cooperation in Tax Administration (“Amendment”), as amended by amending proposals. The Amendment introduces the obligation of country-by-country reporting (“CBCR”). In addition, the General Financial Directorate issued brief information relating to CBCR in early July.

Country-by-country report

The CBCR is another tool used by the tax administration to combat violations of transfer pricing rules and repositioning profits to more favourable jurisdictions. Under the Amendment, the CBCR must contain summary information about international groups, such as revenues, income tax, registered capital, profit/loss, number of employees, asset value, all broken down by country of the group’s presence.  On the basis of this information, tax administrators across the EU will be able to identify potential discrepancies, such as those between generated income and the income tax reported in a jurisdiction.  Subsequently, they will be able to carry out a targeted tax audit of correct transfer pricing policies. Of course, we will be pleased to assist you in defining transfer pricing rules and preparing transfer pricing documentation.

Amendment introducing the CBCR obligation

Originally, the Amendment was to take effect on 5 June 2017. Nevertheless, it is now more likely that it will be only finally approved and published in the Collection of Laws in autumn this year. The passed amending proposals reflected the delay by postponing the deadline for filing a report from 30 September to 31 October 2017 for all periods ending by 31 October 2017. All following periods are subject to a general rule: the report must be filed no later than by the end of the first reporting accounting period.

The report is deemed to mean the obligation to notify the ultimate parent entity of an MNE with a consolidated group turnover of €750 million or more, and the entity to file CBCRs for the group (“notification”).

Subsequently, the ‘reported’ entity will file notifications that must be filed within 12 months of the end of the reporting accounting period.

Information of the General Financial Directorate

In this respect, the General Financial Directorate issued information stating the following (without limitation):

  • The tax administrator competent for both documents (report, notification) is the Specialised Tax Authority (powers of attorney must also be presented directly with this authority);
  • A report or a notification may only be filed after the Amendment takes effect (the format and structure of the filing will be published on the effective date);
  • Consequently, documents that have already been filed must be filed again.

If you are not very confident about transfer pricing issues and rules, please do not hesitate to contact us. We will be happy to help.

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