Czech Republic: legislative update on low value adding services, tax office restructuring and recent developments in APAs

Tax Controversy & Dispute Resolution ()

Legislative update on low value adding services

The new Decree on Low Value Adding Services of the General Financial Directorate (D-10) took effect on 1 January 2013. D-10 covers both domestic and cross-border intra-group services of a low value adding nature that do not constitute a core business activity of the service provider, represent routine functions, and do not represent substantial cost or income for the parties concerned. Eligible taxpayers are exempt from preparation of full-scope transfer pricing documentation and benchmarking analysis; with the mark-up on the service costs expected to be in the range of 3% - 7%.

Recent developments in APAs

The Czech Republic has an overall positive APA environment, with a steady flow of APAs being filed. Out of the total 99 APAs filed over the period 2008-2012, 52% have already been approved.

Tax office restructuring

The Czech tax authorities have operated under a new organisational structure since 1 January 2013. Although the restructuring should not have an immediate impact on taxpayers, it is expected that transfer pricing audits will continue to increase in coming years in view of the increased number of the tax authority personnel and a higher number of the tax offices focusing on transfer pricing.