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The impact of the energy crisis on transfer pricing

27. 1. 2023Ludmila Benešová

On 20 December 2022, the General Financial Directorate of the Czech Republic (hereafter “GFD”) issued a statement addressing the impact of higher energy prices in the context of transfer pricing issues. The statement was particularly relevant to low-risk entities in the group where prices for services provided are set using the cost-plus method.

Energy costs are an item that normally enter into the calculation of the profitability ratio and are burdened by the usual profit margin. Therefore, their increase or decrease does not justify any additional consideration in the transfer pricing. Thus, a change in the price of energy resources is not a sufficient argument to justify achieving a lower-than-market profitability.

In the light of the GFD’s statement, it can be expected that the tax administration’s control activities will also be focused on controlling low-risk entities with a noticeably low profitability. For this reason, it may be recommended that it be verified whether in such cases the current methodology applied to transfer pricing is followed, or that the manner in which transfer prices are determined in the transactions in question be updated.

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