Czech Republic vs. FISH MARKET a.s., January 2013, Supreme Administrative Court , Case No 1 Afs 101/2012 – 31

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FISH MARKET a.s. was engaged, among other things, in the sale of live freshwater fish and that the margin on sales to a related party (KOLTER, a.s.) was much lower than on sales to other independent companies.

The tax authorities therefore began to examine the reasonableness of the difference in the agreed selling prices of the fish. During the audit, the tax administrator found that the quantity of fish purchased from the selected distributors did not affect the price of the goods (e.g. the customer Human purchased 4.8 tonnes of live scaled carp at CZK 45.23 per 1 kg, the trading company Schultheiss GmbH purchased 27 tonnes in the period in question at CZK 46.1 per 1 kg. The claim that KOLTER had taken surplus fish and was therefore charged a lower price was not substantiated by the applicant and no evidence of discounted sales was produced or appears in the administrative file.

The Regional Court agreed with that assessment.

An appeal was then filed by FISH MARKET with the Supreme Administrative Court.

Judgement of the Court

The Court dismissed the appeal and decided in favour of the tax authorities .

When issuing a decision the tax authorities must prove that the price of the disputed transaction (the so-called transfer price) was agreed between related parties and that the transfer price differs from the price that would have been agreed between independent persons in normal commercial relations under the same or similar conditions (the so-called reference price). If these first two steps are fulfilled and the authorities finds a difference between the transfer price and the reference price, it must give the taxpayer an opportunity to explain and substantiate the difference.

The burden of proof in the first two steps lies with the tax administration and shifts to the taxpayer only if it can prove that the parties are related and that they have agreed on a price that differs from the reference price. The taxpayer (if it wants to defend the amount of the agreed price) must then claim and prove special and normal market conditions, but at the same time economically rational reasons why the price between it and the related party was agreed differently from the reference price.


Where the tax authority establishes a reference price on the basis of data on the actual prices actually achieved for an identical or similar commodity between genuinely existing independent operators, it must carefully examine the extent to which those prices were achieved under the same or similar conditions as those under which the price was negotiated by the connected persons and, if those conditions differ, make an appropriate adjustment to the reference price. The burden of proof on the tax authorities also relates to establishing the circumstances in which the price was negotiated by the connected persons. Also, where the tax authority establishes the reference price on the basis of data on the prices actually achieved for an identical or similar commodity between actually existing independent entities, this will normally lead to the establishment of a range of specific prices so achieved (e.g. For the purposes of determining the difference between prices, the price must be based on the range of prices within the evidentially fixed interval (see the judgment of the Supreme Administrative Court of 31 March 2009, No. 8 Afs 80/2007 – 105, published under No. 1852/2009 Coll. of the Supreme Administrative Court).”

“In the present case, the tax administrator used the ‘comparable uncontrolled price method’ (CUP) to determine price comparability. This is the preferred method of comparison, which is used in transactions where there is a fully comparable (identical) product – a commonly traded commodity sold by the undertaking under examination to both related and independent undertakings. The identity of the product or commodity sold is thus an essential element.

The tax authority analysed the structure of the applicant’s customers – distributors who purchased the same goods during the period under review; it found that Schultheiss GmbH (Germany), Bihl Raymond + Cie (France), TEHAG (Hungary), Human Inh. Paulus – Fischgrosshandlung (Germany), GYORI ‘ELORE’ HALÁSZATI TZS (Hungary). It found that Schultheiss GmbH (Germany) came closest to the volume of business carried out between the applicant and KOLTER a.s. The tax authorities thus selected six independent entities purchasing exactly the same product from the applicant during the periods under consideration. The result was to find the price range within which the agreed prices per kg of the identical product purchased during the period under consideration by the independent customers varied and to compare it with the price agreed with the dependent party-KOLTER a.s.

With regard to the applicant’s claim that the price agreed with KOLTER a.s. is influenced by the low price level in Slovakia, the defendant argued that the price level in Hungary, for example, from where the three distributors in the comparative sample were selected, is entirely comparable. Moreover, the price level in the individual countries is not relevant; what is relevant is the level of the price arrangement between various independent persons at which those customers purchased the product from the applicant (it is therefore irrelevant at what price they then resold it on the market). The Supreme Administrative Court agreed with that conclusion. Moreover, by comparing the cost and revenue accounts of these persons, the tax administrator found that, in the period under review, the applicant’s margin on sales of fish to the related person, KOLTER, a.s., was significantly lower (1,71 %) than on sales to another independent customer, Schultheiss, GmbHP (11,62 %); the margin of KOLTER a.s. (these findings also support the defendant’s conclusion that the person associated with the applicant enjoyed commercial advantages, although the tax authorities did not use this finding as evidence but it became the initial reason for investigating whether any differences in the agreed prices existed).

In so far as the applicant reiterates, both in the application and in the appeal, that the comparison between KOTLER a.s. and Schultheiss, GmbHP and Human and Schultheiss, GmbHP cannot be made because of the different structure of the purchases and that therefore an inappropriate sample of traders was chosen, the Court does not accept that argument. On the contrary, both the defendant and the Regional Court made it clear that Schultheiss, GmbHP and KOLTER a.s. had purchased almost identical quantities of fish from the applicant, were comparable in that respect and it was therefore no longer relevant what other products (now not compared) the companies additionally traded.

The Court also agreed with the denial of the need to compare economic market conditions, since the defendant considered that it was precisely the determination of the selling price of the goods vis-à-vis the customers that was relevant. The prices at which those customers sold the goods, if any, are no longer relevant from the point of view under examination. It is certainly conceivable that, in a weaker market, these customers (independent persons) would not make the same profits from their downstream business as they would in a stronger market. However, the subsequent economic behaviour of those persons does not affect the sample of distributors selected who purchased a comparable volume of goods from the applicant, nor does it affect the reasoning and findings made by the tax authorities in determining the comparability of the selling price. Nor does the tax authority’s chosen method of comparison (CUP) take that information into account.”

“The Regional Court’s conclusion in the present case is therefore incorrect only in so far as it expressly stated in its judgment that it could not take into account the evidence proposed by the applicant, since it was based, in principle, on the state of affairs which existed at the time when the administrative authority made its decision; it is the only way in which it can assess the correctness or incorrectness of its procedure and its decision. On the other hand, however, the applicant only offered evidence intended to demonstrate the different price levels on the various markets at which goods can be sold on those markets. However, as regards this line of argument, the Court clearly explained and described (pp. 7, 8 and 9 of the judgment) that it was not decisive at what price the goods supplied by the applicant to the various distributors were resold on the various markets, but only at what price the applicant sold identical goods to its customers, who were a group of persons economically independent of the applicant on the one hand and a dependent person (KOLTER a.s.) on the other. That means that the court explained in the text of the judgment why it considered the situation to be sufficiently proven; in that situation, the court’s erroneous reasoning on the impossibility of taking evidence does not therefore affect the legality of the judgment.

For the reasons set out above, the Supreme Administrative Court therefore fully agrees with the conclusions of both the defendant and the court that the complainant did not bear the burden of proof in relation to proving the reason for the difference in prices, and that the tax liability for the tax periods in question was therefore assessed against him in full accordance with the law. Both the defendant and the court described why and on what evidence they relied and why they considered that the complainant had failed to prove its allegations concerning the proof of the tax base and corporation tax for the 2007 tax year.”


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Case No 1 Afs 101-2012 - 31