Italien fashion group, Dolce & Gabbana s.r.l. (hereinafter DG s.r.l.), the licensee of the Dolce&Gabbana trademark, entered into a sub-licensing agreement with its subsidiary Dolce&Gabbana Industria (hereinafter DG Industria or Industria) whereby the former granted to the latter the right to produce, distribute and sell products bearing the well-known trademark throughout the world and undertook to carry out promotion and marketing activities in return for royalties. DG s.r.l., in order to carry out promotion and marketing activities in the U.S.A., made use of the company Dolce&Gabbana Usa Inc. (hereinafter DG Usa) with contracts in force since 2002; in particular, on March 16, 2005, it entered into a service agreement whereby DG Usa undertook to provide the aforesaid services in return for an annual fee payable by DG s.r.l.; this consideration is determined on the basis of the costs analytically attributable to the provision of the agreed services in addition to a mark up, i.e. a mark-up, determined in a variable ... Read more

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 price agreed between the related parties for advertising space was excessive and not determined in accordance with the arm’s length principle. ANITA B s.r.o. filed an appeal against the assessment. The Regional Court dismissed the appeal as unfounded by judgment of 26 October 2021, No. 62 Af 70/2019-48. The Court concluded that the tax authorities had established that the price agreed between ANITA B s.r.o. and its supplier (ELAPROMO) differed from the price that would have been agreed between unrelated parties. The Court upheld the method chosen by the tax authorities and concluded that ANITA B s.r.o. had failed to prove that the advertising costs claimed were justified in full. An appeal was then filed with the Supreme Administrative Court Judgement of the Supreme Administrative Court The court decided in ... Read more

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. The Regional Administrative Court dismissed the appeal and upheld the decision of the tax authorities. An appeal was then filed against this decision with the Supreme Administrative Court Judgement of the Supreme Administrative Court The court decided in favour of SERVIS OPAVA. The prerequisite for the adjustment of the tax base pursuant to Section 23(7) of Act No. 586/1992 Coll., on Income Taxes, is the determination that the relationship ... Read more

LCN Group had deducted costs in its taxable income for marketing services provided by related parties – PRESSTEX MEDIA SE and TARDEM Media s.r.o. and PAPILIO. The claimed advertising costs from PRESSTEX in FY 2012 was produced and implemented by PAPILIO and subsequently invoiced to LCN Group, virtually unchanged, at a price 23 times higher than the price of the advertising, without the corresponding value added being justified. In relation to FY 2013, LCN Group claimed advertising costs from TARDEM in a similar pattern where the price was increased by up to 56 times. In both tax periods, LCN Group’s advertising/promotion costs were related to sporting events (gymnastics world cup, tennis tournament and golf tournaments). The tax authorities concluded that the prices agreed between the parties was not at arm’s length and issued an assessment. The Regional Court annulled the assessment. It argued that the tax authorities had not sufficiently dealt with the identification and description of the conditions under ... Read more

LCN Group s.r.o. had deducted costs in its taxable income for marketing services provided by related parties. Following an audit, the tax authorities concluded that the prices agreed between the parties was not at arm’s length and issued an assessment. Decision of the Regional Court The Regional Court annulled the assessment and decided in favor of the LNC Group. The court held that the tax authorities had not sufficiently dealt with the identification and description of the conditions under which the prices of the controlled transactions had been agreed. The tax authorities had not considered the “commercial strength” and “advertising capacity” of the parties. Click here for English Translation Click here for other translation ... Read more

For FY 2007, 2008 and 2009, JV had deducted expenses consisting in the payment for services pursuant to invoices issued by BP Property s.r.o. and TOP ZONEVIEW. The services consisted in the provision and implementation of an advertising campaign. Following an audit the tax authorities adjusted JV’s taxable income by the difference found, since pursuant to Article 23(7)(b)(5) of the Income Tax Act, the prices agreed differed from the prices which would have been agreed between unrelated parties in normal commercial relations under the same or similar conditions. JV contested the decision of the tax authorities but the appeal was dismissed by the Regional Court. The Regional Court held that the applicant’s objection – that he did not know and could not have known about the chain because he had dealt only with the managing director of Property Praha or B.V. – was unfounded. Section 23(7)(b)(5) of the Income Tax Act does not require proof of active conduct of all ... Read more

In this case the court accepted the tax authorities’ procedure for determining the arm’s length price for advertising services, whereby the tax authorities took into account conditions such as the size of the advertising space, the type of event, the duration of the advertising, etc., when comparing controlled and uncontrolled transactions The appeal of JN Trans was dismissed by the court. Click here for English Translation Click here for other translation ... Read more

EWE s.r.o first criticised the Regional Court for the lack of logical reasoning in the grounds of the judgment, based on evidence that it had established a legal relationship with another person mainly for the purpose of reducing the tax base. Although the facts adduced by the administrative court show that ‘some third parties’ created a relationship between them for that purpose, it does not indicate which evidence shows that it was she who created such a relationship for the purpose of reducing the tax base, as is intended by section 23(7)(b)(5) of the Income Tax Act. This defect in the court’s decision is all the more serious since she herself argued that no evidence was adduced in the administrative proceedings (in the tax inspection report) to show that she was knowingly involved in a chain of otherwise connected persons. It is thus merely the unproven assumptions of the tax authorities. No such evidence was presented by the Police of ... Read more

Cheil Communications India Pvt. Ltd. is a subsidiary of a Korean based advertising agency, Cheil Communications. The Indian affiliate had excluded pass-through costs from its cost base when determining the arm’s length remuneration for its activities. The tax authority included the the pass-through costs in the cost base and issued an assessment for FY 2005-06 where these costs were also marked up. Judgement of the Tribunal The Tribunal annulled the assessment and ruled in favor of Cheil Communications India. Excerpt “(…)For performing the functions for and on behalf of associated enterprises, the assessee is remunerated by its associated enterprises on the basis of a fixed commission/charges based on expenses or cost incurred by the assessee for release of a particular advertisement. It is also to be noted that advertising space (be it media, print or outdoor), has been let out by third party vendors in the name of ultimate customers and beneficiary of advertisement. We have gone through the invoices ... Read more

If the assessment of the abnormal nature of a management act poses a question of law, it is, as a general rule, up to the administration to establish the facts on which it bases itself to invoke this abnormal nature. However, this principle can only be applied in compliance with the legislative and regulatory provisions governing the burden of proof in tax litigation. The determination of the burden of proof stems mainly, in the case of companies subject to corporation tax, from the nature of the accounting operations to which the management acts challenged by the administration gave rise. If the act contested by the administration has resulted, in the accounts, in an entry relating, as is the case here, to travel expenses, to charges of the nature of those referred to in Article 39 of the same Code and which are deducted from the net profit defined in Article 38 of the Code, the administration must be deemed to ... Read more