Following an audit the tax authorities issued an assessment of additional income resulting from an adjustment of the tax deductions related to marketing expenses. According to the tax authorities the parties to the transactions were “otherwise related” within the meaning of the Czech arm’s length provisions in § 23 par. b) point 5 of the Income Tax Act.
SERVIS OPAVA filed an appeal against the assessment claiming that the tax authorities did not established the existence of a relationship between the parties and therefore had no legal basis for the adjustment.
Judgment of the Regional Court
The Court dismissed the appeal and upheld the decision of the tax authorities.
The court first dealt with the interpretation of § 23 par. b) point 5 of the Income Tax Act.
In this regard the court stated that was clear from the content of the administrative file that the applicant had a duly concluded contract with the supplier. The court therefore rejected the argument that the tax administrator should have proved the existence of a contractual relationship between economically or personally or otherwise connected persons. In this connection, the court referred to the judgment of the Supreme Administrative Court of 13 June 2013 No. 7 Afs 47 / 2013-30.
The court did not consider the objection that there was no so-called “profit spillover” in the plaintiff’s case. He inferred this from the fact that he had increased his tax burden because, while the advertising supplier was required to pay value added tax on the supply, he himself was required to pay personal income tax. The Court emphasized that the applicant was ultimately the which reduced the tax base by amounts many times higher than the current price for similar services.
The court described the allegation that the tax authorities were influenced by the publicity of certain court decisions in the case of PAMBROKE’s advertising in assessing the case as speculative and unsubstantiated.
Last but not least, the court found the objection concerning the evaluation of the contracts submitted by the plaintiff to the defendant also unfounded. It stated that the defendant had duly justified its conduct in the contested decision, stating that the contracts submitted were not comparable to the conditions on the part of the applicant as regards the scope of the services provided or in terms of time. In those circumstances, it was superfluous for the defendant to consider comparing the contract prices in those contracts with the price of the service provided to the applicant.22 Af 42-2019 - 36