Czech Republic vs Inventec s.r.o., May 2025, Supreme Administrative Court, Case No 1 Afs 2/2025 – 54

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Category: Benchmark, Range and Median, Comparability Analysis, Transfer Pricing Methods | Tag: , , , , , , , , , , , , ,
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In FY 2014 Inventec carried out manufacturing activities in the electronics industry on behalf of its parent company. It took formal title to the raw materials, but considered that its role was limited to assembly, without assuming risk or adding value to the materials. Inventec therefore used ROVAC (return on value added costs – not including cost of materials) as a profit level indicator (PLI) in its transfer pricing analysis.

The tax authorities disagreed with the choice of PLI and considered ROTC (return on total costs – including materials) to be more appropriate.

An appeal was filed by Inventec, which ended up before the Regional Court, which in its decision no. 29 Af 91/2019-147 found that the tax authorities had not taken into account Inventec’s FAR profile and that the alternative choice of profit level indicator – ROTC instead of ROVAC – had therefore not been sufficiently justified. On this basis, the court quashed the assessment and remitted the case to the tax authorities for reconsideration.

The tax authorities reconsidered their approach and carried out an additional FAR analysis and amended their assessment accordingly. The new assessment was then the subject of the new appeal to the Regional Court which in a ruling issued in December 2024 upheld the tax assessment issued by the tax authorities.

An appeal was then filed with the Supreme Administrative Court.

Judgment

The Supreme Administrative Court dismissed the appeal of Inventec s.r.o. and upheld the decision of the Regional Court.

(See also the FY 2013 Judgment)

 
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