Country-by-country reporting has been increasingly discussed in recent times, particularly in connection with top-up taxes. With its growing importance, it is essential to highlight the obligations companies face in this area. The concept of Country-by-Country Reporting (CbCR) was introduced by the OECD under its BEPS initiative, aimed at addressing tax base erosion and profit shifting between countries. Multinational groups with consolidated turnover exceeding EUR 750 million in the previous accounting period are required to prepare and submit a Country-by-Country Report. The obligation applies to entities located in tax jurisdictions that participate in the CbCR. The list of treaty countries participating in the CbCR is continuously updated and published via the Financial Bulletin on the website of the Ministry of Finance of the Czech Republic.

Czech companies must fulfill their CbCR obligations by submitting either a Report or a Notification, with the latter being the more common. The competent local tax authority is the Specialized Financial Office.

Country by Country Notification

Czech companies belonging to a multinational group subject to the CbCR obligation, but which are not the reporting entity, must submit a so-called “CbCR Notification” (i.e., they are required to inform the Tax Authority about the entity reporting on behalf of the group). In the Czech Republic, this notification must be completed by the end of the period for which the CbCR is filed.

If the information provided in the CbCR notification does not change, this reporting obligation is generally a one-time requirement for the Czech entity. It must be fulfilled either:

• in the period when the group is required to submit a CbCR notification for the first time, or
• in the period when the Czech entity newly joins a group already subject to the CbCR reporting obligation.

If the reported data changes, the company must notify the Tax Authority within 15 days of the change.

Country by Country Report

The CbCR is submitted on behalf of the entire group by the designated “reporting entity”. This is usually the ultimate parent company; however, if the parent is based in a country not included on the list of participating jurisdictions, a representative European or parent entity may assume this role.

If the reporting entity is a Czech company, it must submit a CbCR each year within 12 months of the end of the relevant reporting period. The CbCR report consists of three main parts and includes the following information:

Overview of the multinational group

• Summary information on the group’s operations by country or jurisdiction,
• Aggregated financial data for the group, broken down by each jurisdiction where the group operates.
  The report provides details such as:
• Revenues in each jurisdiction (separately for related and unrelated parties),
• Profit or loss before tax,
• Income tax payable and income tax paid,
• Share capital,
• Accumulated earnings,
• Number of employees,
• Tangible assets (excluding cash and cash equivalents).

Information on individual member entities

• Identification of each entity,
• The jurisdictions where they are established and operate,
• The nature of their main business activities.

Additional information

• Explanations or clarifications related to the reported data, such as reasons for variations from previous periods, data sources, or applied exchange rates.

Use of information

The information obtained through CbCR may be used by the tax administrator to verify transfer pricing practices or to select entities for tax audits, particularly when evaluating risks of tax base erosion and profit shifting.

Submission of the form

Both the CbCR and the notification must be submitted to the Specialized Tax Office exclusively via the EPO application; submission through the company’s data box is not permitted.

Penalties for non-compliance

Failure to comply with the notification obligation may result in a fine of up to CZK 500,000. If the reporting entity fails to submit the Country-by-Country Report, a penalty of up to CZK 1.5 million may be imposed.

Common mistakes in CbCR

The Organisation for Economic Co-operation and Development (OECD) recently published an overview of the most frequent errors made by companies when preparing Country-by-Country Reports. These include:

• Missing or incorrectly stated tax identification numbers,
• Using values in different currencies instead of converting them into the functional currency,
• Reporting rounded values instead of whole numbers without decimal places,
• Mixing up columns when entering figures,
• Incorrect use of ISO codes assigned to jurisdictions,
• Misreporting or incorrectly identifying permanent establishments.

Therefore, if you are one of the companies affected by either CbCR or notification obligations, we recommend that you make sure that the information you provide meets all requirements of the tax authority.

In case it might be of your interest, we would be pleased to assist you with a complex fulfillment of your CbCR obligations or related transfer pricing issues.

Simona Stanislavová

Senior Tax Consultant | Accace Czech Republic

Get in touch with us

Barbora Stejskalová

Tax Partner | Accace Czech Republic

Book a meeting with Barbora