Final Word from Tuesday, July 26, 2016
At the end of 2012, when Miroslav Kalousek was finance minister, transfer pricing and other types of related-party transactions weren't the issue they are today. No one was paying much attention yet to the work of the OECD. During Dec. 2012, a total of 485 corporate bonds with a nominal value of Kč 1 each were issued in the CR, compared to only 26 bonds in the first half of 2016. The result is a slew of instruments paying as much as 15% tax-free to company owners. (Some variable-rate bonds might yield even more.) Alas, related-party transactions are now a big deal, and Andrej Babiš boasts about how he is cracking down. One test of the fairness of a related-party transaction, as Babiš knows, is whether the same price would be offered to an unrelated party. Would Babiš, for example, sell 6.00% tax-free Agrofert bonds to someone else? He never did, which suggests the bonds weren't priced fairly. Perhaps the tax office should take a look. [Czech Republic aggressive tax planning]
Glossary of difficult words
transfer pricing - the price at which divisions of a company transact with each other;
related-party transaction - a business deal or arrangement between two parties who are joined by a special relationship prior to the deal;
slew - a large number or quantity;
to crack down - to take action against.