Czech Republic – Transfer Pricing (2025)

Legal framework and scope

The primary domestic legal basis for transfer pricing is the Czech Income Tax Act 586/1992 Coll., which references the Arm’s Length Principle in Section 23 para 7. Administrative and methodological guidance issued by the tax authority complements the Act; key documents include General Financial Directorate instructions GFŘ D-22, GFŘ D-32, GFŘ D-34, GFŘ D-334 and GFŘ D-10. The OECD Transfer Pricing Guidelines are not directly implemented into Czech legislation, but Guideline GFD D-22 recommends their use and domestic provisions are broadly consistent with the OECD Guidelines. A specific annex to the corporate tax return captures information on related-party transactions and must be filed in Czech.

Regarding scope, Czech rules apply to transactions between related parties as defined by law and to adjustments arising from assessments that the agreed prices do not reflect arm’s length conditions. The profile does not provide domestic specific guidance on intangibles; in such cases the general transfer pricing rules in the law and administrative guidance apply and, where appropriate, the OECD Guidelines should be consulted.

Arm’s Length Principle and the role of the OECD Guidelines

The Arm’s Length Principle is explicitly referenced in Section 23 para 7 of the Czech Income Tax Act 586/1992 Coll. Although the OECD Transfer Pricing Guidelines are not transposed verbatim into domestic law, the tax administration recommends using them (Guideline GFD D-22) and domestic practice is aligned with the OECD approach. GFŘ D-34 incorporates transfer pricing methods consistent with the OECD Guidelines and the Guidelines are used as an explanatory and methodological instrument in audits and assessments.

Definition of related parties

The Czech Income Tax Act 586/1992 Coll., Section 23 para 7 defines related parties by distinguishing between persons associated through capital and persons otherwise associated. Persons are associated through capital when one person directly or indirectly participates in the capital or voting rights of another and such participation represents at least 25% of the registered capital or 25% of voting rights; in such cases all those persons are mutually associated through capital. The law further treats indirect holdings reaching the same 25% threshold as associations through capital. “Persons otherwise associated” include those where one person participates in management or control of another, where identical or close persons participate in management or control of other persons, entities controlled by the same controller, close persons, and entities that established legal relationships predominantly to reduce a tax base or increase a tax loss. The law clarifies that mere membership of supervisory boards of two entities does not by itself create an association.

Methods and application criteria

Administrative guidance (GFŘ D-34) confirms that Czech domestic provisions are consistent with the OECD Transfer Pricing Guidelines and recognize the standard OECD methods: Comparable Uncontrolled Price (CUP), Resale Price, Cost Plus, Transactional Net Margin Method (TNMM) and Profit Split. These methods are incorporated in binding methodological guidelines rather than the Income Tax Act itself. The selection of the method follows the “most appropriate method” principle as recommended in Guideline GFD D-22 and noted in GFŘ D-34; there is no statutory rigid hierarchy of methods.

Comparability and ranges

Czech practice follows the comparability analysis set out in Chapter III of the OECD Guidelines. GFŘ D-34 indicates a preference, within administrative procedures, for domestic comparables or comparables from similar markets when appropriate. The tax administration does not use secret comparables. Domestic law is consistent with the use of an arm’s length range and statistical measures for determining arm’s length remuneration, and comparability adjustments are required where justified, consistent with the OECD framework.

Documentation and reporting

Taxpayers must provide information on related-party transactions via a specific annex to the Czech tax return, filed in the Czech language. While Master File and Local File are not currently mandated by law, the Ministry of Finance recommends preparing them in accordance with OECD guidance via Guidance D-334. The Country-by-Country Report (CbCR) is regulated since 2017 by Act 164/2013 Coll.; the specific filing conditions are set out in Sections 13za and following, as amended by No. 305/2017. The tax return includes a specific annex containing data on related-party transactions and the Master File and Local File are recommended documentation to support transfer pricing positions in audits.

Act 164/2013 Coll., Section 13zp provides sanctions relating to CbCR compliance. The tax administrator may impose a disciplinary fine on a Czech Ultimate Parent Entity of up to CZK 1 500 000 if it fails to comply with reporting obligations. A Czech Constituent Entity acting as a Surrogate Entity may be fined up to CZK 1 500 000, while other Czech Constituent Entities may be fined up to CZK 600 000 for non-compliance. The Act also allows fines for failure to retain documents or to request assistance from the Ultimate Parent Entity. A disciplinary fine cannot be imposed on a Czech Constituent Entity that proves it did not receive the necessary information from the Ultimate Parent Entity after requesting assistance, that it disclosed in the CbCR all available information it had received, and that it stated in the report that the Ultimate Parent Entity refused to provide assistance.

Where explanations and submitted documents are sufficient to assess arm’s length compliance, the tax administrator may waive the requirement for full transfer pricing documentation under Guidance D-334. Guidance GFŘ D-10 provides a specific example of such waiver for low value-adding intra-group services.

Safe harbours, simplifications and materiality

The main simplification measure explicitly set out in administrative guidance is the Guidance of the General Financial Directorate D-10, which implements a simplified approach for low value-adding intra-group services (LVAIGS). Under GFŘ D-10, and in line with Section D, Chapter VII of the OECD Guidelines and the JTPF report, an entity meeting certain criteria may apply a cost-plus mark-up in the range of 3–7%. Guidance D-10 also provides that, if documentation and explanations are sufficient, the tax administrator may waive full documentation requirements as per Guidance D-334. No other sectoral or transactional safe harbours are identified in the profile.

APAs and MAP; procedures and timing

The Czech Republic provides mechanisms to prevent and resolve transfer pricing disputes, including rulings and Advance Pricing Agreements (APAs). APAs are regulated by the Czech Income Tax Act Sections 38nc and 38nd and by double taxation treaties; the profile states that unilateral, bilateral and multilateral APAs are available, but roll-back APAs are not permitted. Mutual Agreement Procedures are governed by double taxation treaties and by Act no. 335/2020 which implements EU Directive 2017/1852 (the dispute resolution mechanism, DRM) and entered into force on 22 July 2020. The profile does not provide detailed timelines for APA or MAP resolution; for procedural timing the applicable legal provisions and the Czech MAP profile should be consulted.

Penalties and other considerations

Specific penalties are described in Act 164/2013 Coll., Section 13zp regarding CbCR non-compliance, including disciplinary fines of up to CZK 1 500 000 for certain entities and up to CZK 600 000 for other constituent entities, with limited exceptions where a constituent entity can demonstrate lack of cooperation by the Ultimate Parent Entity. The Czech Income Tax Act 586/1992 Coll. also contemplates secondary adjustments: Section 22 para 1 letter g) point 3 permits reclassification of differences between the arranged transfer price and the usual market price under Section 23 para 7 into profit shares, and Section 25 para 1 letter w) addresses the non-deductibility of interest as expenditure where applicable, functioning as a domestic secondary adjustment mechanism.

Year-end adjustments are used in practice to reflect economically accurate results; there are no special statutory rules prohibiting or prescribing specific year-end adjustment mechanics and the Czech approach follows the OECD Guidelines as an explanatory instrument. Regarding profit attribution to permanent establishments, Czech tax treaties contain Article 7 in the wording of the OECD Model Convention 2008, i.e. the non-AOA approach. Nevertheless, it is possible to adjust profits after the tax year end to ensure true and fair figures reflecting the actual functions and risks borne by the company parts and the establishment(s).

Conclusion

The Czech transfer pricing framework is rooted in the Czech Income Tax Act 586/1992 Coll. (notably Section 23 para 7) and is shaped by administrative guidelines that align domestic practice with the OECD Transfer Pricing Guidelines. The administration endorses the most appropriate method principle and recognizes the standard OECD methods, prefers domestic or similar-market comparables, accepts arm’s length ranges and comparability adjustments, and offers a simplification mechanism for low value-adding intra-group services. Transfer pricing reporting is handled through a tax return annex in Czech; Master File and Local File are recommended by Guidance D-334 though not legally mandatory, and CbCR obligations are codified in Act 164/2013 Coll. APAs, MAPs and rulings are available to manage and resolve disputes.

References

This profile is based on material published by the OECD. For more information, see https://www.oecd.org/en/topics/sub-issues/transfer-pricing/transfer-pricing-country-profiles.html