Stora Enso Wood Products Ždírec s.r.o. a the Czech subsidiary in the Stora Enso Group, a multinational manufacturer of packaging and building products. In the years in question, Enso Wood Products Ždírec s.r.o. provided manufacturing services to its parent company and made losses. An audit was initiated by the tax authorities focusing on the method of determining transfer prices between related parties as defined in Article 23(7) of the Income Tax Act (which contains the Czech arm’s length principle). On the basis of a functional and risk analysis (in which it examined the extent to which the applicant depended on the decision-making mechanisms of another entity in the group), the tax administration concluded that Stora Enso Wood Products Ždírec s.r.o. did not act as a fully-fledged independent entity in its production and related activities, but as a producer with a limited functional and risk profile, since its production activities were influenced by transactions and relationships with its parent company, SEWP, ... Read more

Liquidity risk in a cash pool arrangement arises from the mismatch between the maturity of the credit and debit balances of the cash pool members. Assuming the liquidity risk associated to a cash pool requires the exercise of control functions beyond the mere offsetting of the credit and debit positions of the cash pool members. Therefore, an analysis of the decision-making process related to the amounts of the debit and credit positions within the cash pool arrangement will be required to allocate the liquidity risk under Chapter I ... Read more

Because it may be difficult to find comparable transactions involving the outsourcing of such important functions, it may be necessary to utilise transfer pricing methods not directly based on comparables, including transactional profit split methods and ex ante valuation techniques, to appropriately reward the performance of those important functions. Where the legal owner outsources most or all of such important functions to other group members, attribution to the legal owner of any material portion of the return derived from the exploitation of the intangibles after compensating other group members for their functions should be carefully considered taking into account the functions it actually performs, the assets it actually uses and the risks it actually assumes under the guidance in Section D. 1.2 of Chapter I. Examples 16 and 17 in the Annex I to Chapter VI illustrate the principles contained in this paragraph ... Read more

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