In May 2025, the Czech Republic’s Supreme Administrative Court upheld a significant tax adjustment against Inventec (Czech), s.r.o., a subsidiary of the Taiwanese group Inventec Corporation. The court concluded that the Czech company should have received higher compensation for its contract manufacturing services rendered in 2014.
Background
Inventec (Czech), s.r.o, manufactured server cabinets for Hewlett-Packard on behalf of its Taiwanese parent company. The Czech tax authorities determined that the remuneration received by the subsidiary did not reflect the market value, resulting in an adjustment of CZK 22,644,200 (approximately US$1.03 million) in corporate income tax, plus a fine of CZK 3,344,076.
Court’s Ruling
The Supreme Court supported the tax authorities’ position, stating that the Czech subsidiary should have been compensated under the Arm’s Length Principle. The court emphasized the importance of adequate documentation and comparable analyses to support the Transfer Pricing policies.
Implications for Multinational Companies
This ruling underscores the need for multinational companies to:
- Thoroughly document their Transfer Pricing policies.
- Perform solid comparable analyses to support remuneration among related entities.
- Ensure that compensation reflects market value, especially in contract manufacturing operations.
TPC Group Advice
At TPC Group, we have Transfer Pricing and International Taxation experts who can advise you on business restructuring processes, ensuring regulatory compliance, and optimizing your tax position. Contact us for a customized consultation.
Source: TPCases