Ferplast Slovakia s.r.o. is a contract manufacturer of the Italian FIVAC Group. In the reporting years, it sold 90% of its products to related parties and the remaining 10% to unrelated parties. In 2013 a royalty agreement was concluded with Ferplast SpA, according to which the latter pays a royalty of 2%/5% for the use of trademarks, etc. Ferplast Slovakia s.r.o. also paid the group parent – FIVAC SRL – for ORACLE software licenses.
The tax authorities excluded the trademark royalty payments from the tax expense to the extent that they were related to the sale of products to related parties (90%), but at the same time allowed the royalty payments related to sale of products to independent customers (10%) in the tax expense. According to the tax authorities, there was no reason for a contract manufacturer to pay royalties on products which it produced on behalf of related parties.
Regarding the payments for ORACLE software licenses, the FIVAC SRL had purchased ORACLE software licences from third parties and charged these costs with a 10% profit margin to the group companies. In the opinion of the tax authority, the 10% profit margin was unjustified and therefore did not constitute an expense for obtaining, maintaining and securing income.
Ferplast Slovakia s.r.o. filed appeals with the Administrative Court and later the Regional Court which were rejected.
An appeal was then filed with the Supreme Court.
Judgment of the Supreme Court
The Supreme Court upheld the decision of the Regional Court and rejected the appeal of Ferplast Slovakia s.r.o.
Clich here for English translation
Click here for other translation