Czech Republic vs. Lessor, March 2014, Supreme Administrative Court, No. 9 Afs 87/2012 – 50

Posted on | By Courts of the Czech Republic
Category: Burden of Proof | Tag: , , ,
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At issue was lease of real estate which was owned by the taxpayer and his wife. He was the managing director of Medinvest and, subsequently, of Long Wave, which were involved in the legal relations in question. He was active in connection with the lease of the properties in question, as managing director of Medinvest, he concluded certain sublease agreements with the final subtenants, and on 1 November 2005, as managing director of Medinvest, he concluded a sublease agreement with Long Wave.

Judgement of the Court

The Czech Supreme Administrative Court explained that “[t]he purpose of the provision in question is to prevent unwanted shifting of a part of the income tax base between individual income taxpayers and to enable the sanctioning of abusive price speculation in business relations.

This includes the so-called “profit shifting” between persons with different tax burdens, which usually occurs when such persons charge each other prices in their transactions that are lower or higher than the prices used between independent persons in normal business relations, and the result of such transactions is an increase in costs or a decrease in sales for the company with the higher tax burden and a siphoning off of part of the profits to the company with the lower or zero income tax rate.”

The Court then went on to summarise that “a material difference from normal prices occurs when sales are made too cheap or purchases are too expensive, in which case such a difference must always be satisfactorily documented.”

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Czech March 2014, no. 9 Afs 87-2012 - 50 Supreme Administrative Court

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