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Transfer prices and COVID-19

7. 6. 2021Ludmila Benešová

On the last day of March, the Financial Administration of the CR published a Czech translation of the recommendation for taxpayers and the financial administration on how to proceed when applying regulations in the area of transfer prices when assessing the period affected by the COVID-19 epidemic (hereafter to be referred to as “Instructions”) which were issued by the OECD on 18th December.

The instructions do not give new recommendations outside of the existing OECD directives but focus on how to apply the principle of market distance and the current OECD directive to problems having arisen in connection with the COVID-19 pandemic.

In connection with the impacts of the COVID-19 pandemic, the instructions focus especially on themes concerning:

  • comparative analyses,
  • losses and allocations of specific expenses brought about by the COVID-19 pandemic,
  • impacts on governmental assistance programs,
  • impacts on binding assessment of prices between connected persons (so-called Advance Pricing Agreements).

Significant emphasis is placed on a comparative analysis whose goal is the determination of characteristics of connected subjects and the connected ascertainment of variables which could help in determining market value during the period influenced by the COVID-19 pandemic.

In the context of preparation of documentation for transfer prices for the period affected by the COVID-19 pandemic, we should not neglect the fact of the extent to which a company is truly affected as a result of the COVID-19 pandemic and the extent to which the change occurred due to other circumstances. At the same time it is important to answer questions as to which entity, in the context of an assessed relationship, carries the risk of COVID-19 pandemic impacts.

With regard to the increasing number of tax audits in the area of transfer prices, we recommend, especially in the event of a reduction in profitability, to prepare substantiated arguments and documents which prove accordance with the market distance principle during period impacted by COVID-19. In this regard, we recommend keeping evidence of internal and external facts influencing entrepreneurial activity, such as fluctuation of demand, subsidy volume, supply chain functioning etc. We would also like to mention that documentation for transfer prices serves as a burden of proof in the context of substantiation at a tax administrator’s.

We will be pleased to prepare for your company documentation for transfer prices for the period affected by the COVID-19 pandemic.


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