The General Financial Directorate (GFD) in November 2018 published new Instruction D – 32 concerning a “binding assessment” (in other words, a binding tax ruling) of the manner by which the price agreed between related parties and the tax base of a tax non-resident relating to activities performed by a permanent establishment are determined.
Binding assessment determination
The new version of Instruction D – 32 replaces Instruction D – 333 (the prior version only concerned a binding assessment of the manner of determining transfer prices between related parties pursuant to Section 38nc of the Czech income tax law). Under a new provision in Section 38nd, beginning January 2018, it is also possible for taxpayers to apply for a binding assessment of the method under which the tax base of a tax non-resident relating to activities conducted by a permanent establishment is determined. This is further reflected in new Instruction D – 32.
Both Section 38nc and Section 38nd regulate the procedure for the tax administrator to issue a decision on the binding assessment at a general level. For taxpayers, such a decision for a binding assessment brings greater certainty as to how the tax administrator will view their method of setting transfer prices and of determining the income tax base or, potentially, tax losses.
The new version of the instruction also defines periods in respect of which requests for binding assessments can be filed.
In addition to Instruction D – 32, the GFD is preparing an update of Instruction D – 332 to reflect key changes introduced by the OECD Transfer Pricing Guidelines (2017). Other modifications could include, for example, changes to the taxpayer’s functional and risk profiles (i.e., taxpayers may have more profiles depending on their position in each separate intercompany transaction). The instruction could also:
Updated Instruction D - 332 is expected to be published in the first half of 2019.
Read a December 2018 report prepared by the KPMG member firm in the Czech Republic