Harmful Tax Practices – 2017 Peer Review Reports on the Exchange of Information on Tax Rulings

Czech Republic

The Czech Republic has met the all aspects of the terms of reference (ToR) for the calendar year 2017 (year in review) except for the timely exchange of information on past and future rulings (ToR II.5.6). This issue is continuing from the prior year peer review report. The Czech Republic is recommended to ensure that all information on past and future rulings is exchanged as soon as possible.

In the year of review1 the Czech Republic could legally issue one type of rulings within the scope of the transparency framework.

In practice, the Czech Republic has issued 48 past rulings; for the period 1 April 2016 ‑ 31 December 2016, the Czech Republic issued five future rulings; and for the year in review, the Czech Republic issued 11 future rulings within the scope of the transparency framework.

Peer input was received from one jurisdiction in the respect of the exchanges of information on rulings from the Czech Republic. The input was positive, noting that the information was in a correct format and received in a timely manner.

1. Since 1 January 2018 the Czech Republic can also issues rulings on permanent establishments. This will be reviewed in the subsequent year peer review report.

Introduction

336.  This peer review covers the Czech Republic’s implementation of the BEPS Action 5 transparency framework for the year 2017. The report has four parts, each relating to a key part of the ToR. Each part is discussed in turn. A summary of recommendations is included at the end of this report.

A. The information gathering process

337.  In the year of review the Czech Republic could legally issue one type of rulings within the scope of the transparency framework: cross-border unilateral advance pricing agreements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles. Rulings are issued by the General Financial Directorate, with rulings issued to large taxpayers being issued by a special office and other rulings being issued by local tax administrators.

Past rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1, I.4.2.2)

338.  For the Czech Republic, past rulings are any tax rulings within scope that are issued either: (i) on or after 1 January 2014 but before 1 April 2016; or (ii) on or after 1 January 2010 but before 1 January 2014, provided they were still in effect as at 1 January 2014.

339.  In the prior year peer review report, it was determined that the Czech Republic tax administration’s undertakings to identify past rulings and all potential exchange jurisdictions were sufficient to meet the minimum standard. In the course of exchanging information on certain past rulings in 2017, the Competent Authority detected that for some past rulings, information had to be exchanged with additional jurisdictions than had been indicated in the database.

340.  After detecting this issue, the Czech Republic conducted a complete review of all past rulings and amended the information gathering procedures. The subsequent revision of the rulings in scope led to the identification of eight more exchanges with on past rulings that had to be transmitted, including two exchanges with new Inclusive Framework members. In order to ensure that this issue does not occur in the future, the Czech Republic amended its identification process. As a standard procedure the ruling is now forwarded to the Competent Authority to double check the correct identification of all potential exchange jurisdictions. This issue has therefore been resolved and is therefore considered not a recurring issue. It is determined that the Czech Republic tax administration’s implementation meets the minimum standard.

Future rulings (ToR I.4.1.1, I.4.1.2, I.4.2.1)

341.  For the Czech Republic, future rulings are any tax rulings within scope that are issued on or after 1 April 2016.

342.  In the prior year peer review report, it was determined that the Czech Republic’s process to identify future rulings and all potential exchange jurisdictions was sufficient to meet the minimum standard. After amending the information gathering process to identify all potential exchange jurisdictions as noted above, it is determined that the Czech Republic’s implementation meets the minimum standard.

Review and supervision mechanism (ToR I.4.3)

343.  In the prior year peer review report, it was determined that the Czech Republic’s review and supervision mechanisms were sufficient to meet the minimum standard. This was enhanced with the additional review process conducted in the year of review. The Czech Republic’s implementation therefore meets the minimum standard.

Conclusion on section A

344.  The Czech Republic has met all of the ToR for the information gathering process and no recommendations are made.

B. The exchange of information

Legal basis for spontaneous exchange of information (ToR II.5.1, II.5.2)

345.  The Czech Republic has the necessary domestic legal basis to exchange information spontaneously. The Czech Republic notes that there are no legal or practical impediments that prevent the spontaneous exchange of information on rulings as contemplated in the Action 5 minimum standard.

346.  The Czech Republic is a party to international agreements permitting spontaneous exchange of information, including (i) the Multilateral Convention on Mutual Administrative Assistance in Tax Matters; Amended by the 2010 Protocol (OECD/Council of Europe, 2011) (“the Convention”), (ii) the Directive 2011/16/EU with all other European Union Member States and (iii) double tax agreements in force with 87 jurisdictions.1

Completion and exchange of templates (ToR II.5.3, II.5.4, II.5.5, II.5.6, II.5.7)

347.  In the prior year peer review report, it was determined that the Czech Republic’s completion of the templates were sufficient to meet the minimum standard. In the prior year report, it was noted that the exchanges with EU member states were planned to take place in accordance with timelines under the EU Directive, and for non-EU member states in accordance with the timelines set out in the transparency framework. As such, the Czech Republic was recommended to exchange all information on past rulings as soon as possible, and to apply the timelines for future rulings as set out in the transparency framework.

348.  It is noted that the Czech Republic continues to apply the EU timelines, i.e. the exchanges of information on past rulings took place by 31 December 2017, and the exchanges of information on future rulings are carried out within three months after the end of the calendar half-year in which these rulings were issued, regardless whether the exchange is transmitted to EU Member States or other jurisdictions. The Czech Republic notes that it prefers to have a single timeline system in order to avoid delays.

349.  The Czech Republic confirms that it uses the internal FHTP suggested guidance for completing the summary section for information exchanged under the transparency framework. The summary section therefore contains a description of the case with information including the subject the transfer pricing method applied and where is appropriate the value of the transaction.

350.  The timeliness of exchanges in the year of review is as follows:

 

Past rulings in the scope of the transparency framework	Number of exchanges transmitted by 31 December 2017	Delayed exchanges
		Number of exchanges not transmitted by 31 December 2017	Reasons for the delays	Any other comments
	29	45	Delays occurred due to an one-time additional review process noted in section A, and the time taken for manual review in complicated cases.	Two past rulings had to be exchanged with new Inclusive Framework members; of the delayed exchanges 43 were sent by June 2018, and the remaining two exchanges are expected to be sent before the end of 2018.
Future rulings in the scope of the transparency framework	Number of exchanges transmitted within three months of the information becoming available to the competent authority or immediately after legal impediments have been lifted	Delayed exchanges
		Number of exchanges transmitted later than three months of the information on rulings becoming available to the competent authority	Reasons for the delays	Any other comments
	4	30	The Czech Republic continues to apply the EU timeline for the exchange of information; in complicated cases the delay also exceeds the EU timelines.	All delayed exchanges were sent by May 2018.
Total	33	75

 

Follow up requests received for exchange of the ruling	Number	Average time to provide response	Number of requests not answered
	0	N/A	N/A

351.  The Czech Republic experienced significant delays in exchanging information on past rulings and is experiencing delays in the exchange of information on future rulings, not only due to the application of the EU timelines but in more complex cases also exceeding those timelines. The Czech Republic points out that it amended its processes in the year of review in order to identify all potential exchange jurisdictions which led to an increase of work for the Competent Authority, which is now not only transferring information from the database into the template but manually reviewing each ruling itself. The Czech Republic is currently improving this process in order to become more effective and to comply with the EU timelines.

Conclusion on section B

352.  The Czech Republic has the necessary legal basis for spontaneous exchange of information and a process for completing the templates for exchange. However, the Czech Republic has still not exchanged information on all past rulings and experienced significant delays in the exchange of information on future rulings (ToR II.5.6). The recommendation from the prior year peer review report is therefore retained, and the Czech Republic is recommended to ensure that all information on past and future rulings is exchanged as soon as possible.

C. Statistics (ToR IV)

353.  The statistics for the year in review are as follows:

 

Category of ruling	Number of exchanges	Jurisdictions exchanged with
Rulings related to preferential regimes	N/A	N/A
Cross-border unilateral advance pricing agreements (APAs) and any other cross-border unilateral tax rulings (such as an advance tax ruling) covering transfer pricing or the application of transfer pricing principles	33	Belgium, Bosnia and Herzegovina, Croatia, Cyprus1, Denmark, Former Yugoslav Republic of Macedonia, Germany, Hungary, Italy, Luxembourg, Netherlands, Poland, Serbia, Slovak Republic, Sweden, Switzerland, Turkey, United Kingdom, United States
Cross-border rulings providing for a unilateral downward adjustment to the taxpayer’s taxable profits that is not directly reflected in the taxpayer’s financial / commercial accounts	N/A	N/A
Permanent establishment rulings	N/A	N/A
Related party conduit rulings	N/A	N/A
De minimis rule	N/A	N/A
IP regimes: total exchanges on taxpayers benefitting from the third category of IP assets, new entrants benefitting from grandfathered IP regimes; and taxpayers making use of the option to treat the nexus ratio as a rebuttable presumption	N/A	N/A
Total	33

1. Note by Turkey: The information in this document with reference to “Cyprus” relates to the southern part of the Island. There is no single authority representing both Turkish and Greek Cypriot people on the Island. Turkey recognises the Turkish Republic of Northern Cyprus (TRNC). Until a lasting and equitable solution is found within the context of the United Nations, Turkey shall preserve its position concerning the “Cyprus issue”.

Note by all the European Union Member States of the OECD and the European Union. The Republic of Cyprus is recognised by all members of the United Nations with the exception of Turkey. The information in this document relates to the area under the effective control of the Government of the Republic of Cyprus.

D. Matters related to intellectual property regimes (ToR I.4.1.3)

354.  The Czech Republic does not offer an intellectual property regime for which transparency requirements under the Action 5 Report (OECD, 2015) were imposed.

Summary of recommendations on implementation of the transparency framework

 

Aspect of implementation of the transparency framework that should be improved	Recommendation for improvement
The Czech Republic has not completed the exchange of information on past rulings and is experiencing significant delays in the exchange of information on future rulings due to the application of the timelines set out in the EU Directive 2011/16/EU, but also exceeding those timelines in complex cases. This is a continuing recommendation from the prior year peer review.	The Czech Republic is recommended to ensure that all information on future rulings is exchanged as soon as possible.

References

OECD (2017), BEPS Action 5 on Harmful Tax Practices – Terms of Reference and Methodology for the Conduct of the Peer Reviews of the Action 5 Transparency Framework, OECD/G20 Base Erosion and Profit Shifting Project, OECD, Paris. www.oecd.org/tax/beps/beps-action-5-harmful-tax-practices-peer-review-transparencyframework.pdf.

OECD (2015), Countering Harmful Tax Practices More Effectively, Taking into Account Transparency and Substance, Action 5 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, OECD Publishing, Paris. https://doi.org/10.1787/9789264241190-en.

OECD/Council of Europe (2011), The Multilateral Convention on Mutual Administrative Assistance in Tax Matters: Amended by the 2010 Protocol, OECD Publishing, Paris. http://dx.doi.org/10.1787/9789264115606-en.

Note

← 1.  Parties to the Convention are available here: www.oecd.org/tax/exchange-of-tax-information/convention-on-mutual-administrative-assistance-in-tax-matters.htm. Czech Republic also has bilateral agreements in force with: Albania, Armenia, Australia, Austria, Bahrain, Barbados, Belarus, Belgium, Bosnia and Herzegovina, Brazil, Bulgaria, Canada, Chile, China (People’s Republic of), Colombia, Croatia, Cyprus, Democratic People’s Republic of Korea, Denmark, Egypt, Estonia, Ethiopia, Finland, Former Yugoslav Republic of Macedonia, France, Georgia, Germany, Greece, Hong Kong, Hungary, Iceland, India, Indonesia, Iran, Ireland, Israel, Italy, Japan, Jordan, Kazakhstan, Korea, Kuwait, Latvia, Lebanon, Liechtenstein, Lithuania, Luxembourg, Malaysia, Malta, Mexico, Moldovia, Mongolia, Montenegro, Morocco, Netherlands, New Zealand, Nigeria, Norway, Pakistan, Panama, Philippines, Poland, Portugal, Romania, Russia, Saudi Arabia, Serbia, Singapore, Slovak Republic, Slovenia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Syria, Tajikistan, Thailand, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States, Uzbekistan, Venezuela and Viet Nam.