Daňová správa: Jak na převodní ceny v době energetické krize

Tax Administration: How to deal with transfer pricing in the energy crisis

The General Financial Directorate (GFD) has just published a brief statement on the question of how to reflect the jump in energy prices in intra-group transactions and, in particular, the question of whether or not to take these rising costs into account in the transfer price set-up of low-risk entities (available HERE).

We understand the gist of the GFD's communication to be that the current situation - similar to the covid crisis - does not generally warrant a departure from past practice and established principles (in particular, the emphasis on the functions actually performed and the associated risks borne). In this context, we are reminded of the memorable statement by representatives of the tax administration that "covid is not a risk - it just 'activates' a lot of risks that someone carries".

In this context, the GFD notes that for manufacturing companies with a limited functional profile, their remuneration is usually determined based on the cost-plus method, with energy costs being one of the costs that enter into the basis for applying the normal profit mark-up. According to the GFD, an increase or decrease in this cost item plays no role in assessing whether or not these costs should enter the cost base.

According to the GFD, the actual increase or, in the future, decrease in energy prices will be reflected in the remuneration of these undertakings in the mark-up that is established for comparable independent undertakings, since these independent undertakings are also subject to fluctuations in energy prices. A significant increase in prices will consequently be reflected in a decrease in the profitability of the independents and hence in the mark-up obtained from the market, which is used by related parties in the application of transfer pricing methods in the pricing framework.

This is the view of the GFD. We add that, as always, it is the detail that determines the most appropriate practical approach to assessing the proper setting of transfer pricing. We would be happy to discuss it with you after Christmas if you wish.

We wish you a Merry Christmas.    

Author:

Lucie Karpíšková