The business activity of A S.A. was wholesale of pharmaceutical products to external pharmacies, hospitals, wholesalers (including: to affiliated wholesalers). The tax authority had noted that the company’s name had been changed in FY 2013, and a loss in the amount of PLN […] had been reported in the company’s tax return. An audit revealed that the Company had transferred significant assets (real estate) to a related entity on non-arm’s length terms. The same real estate was then going forward made available to the company on a fee basis under lease and tenancy agreements. The tax authority issued an assessment where a “restructuring fee” in the amount of PLN […] was added to the taxable income, reflecting the amount which would have been achieved if the transaction had been agreed between independent parties. According to the company the tax authority was not entitled at all to examine the compliance of the terms of these transactions with the terms that would ... Read more

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 ... Read more

A Czech company (the lessor) owned real estate and rented it to independent parties. An Austrian related company provided management and consulting services to the lessor The service fees significantly increased each year, although the income of the Czech company and the number of lease contracts were constant in the examined years The tax authorities required that the taxpayer prove the actual provision of the services and their relationship to taxable income. The tax authorities rejected this explanation and concluded that the taxpayer had not proven the real condition of the real estate in the examined period. The legal question was: the scope of the burden of proof that rests with the taxpayer with respect to services received from related party The court ruled that: the taxpayer was obliged to prove the relationship of the expensed service fees to its taxable income. Tangible evidence of the provided services, including reports, correspondence and confirmation of business trips should be provided by ... Read more

A lessor rented real estate for a low price to related parties.  The tax authorities claimed that the price was too low and required additional income to be taxed with the lessor. The lessor explained that the low rental fees were due to the poor condition of the real estate that was leased to related parties. The tax authorities rejected this explanation and concluded that the taxpayer had not proven the real condition of the real estate in the examined period. Judgement of the Court The court ruled that: the burden of proof was on the tax authorities and the authorities had to prove all significant parameters of the controlled transaction. The tax authorities must establish the arm’s length price (called the “reference price” in the decision) in order to be able to require that the taxpayer explain the difference between the arm’s length price and the intercompany Price. Furthermore, the tax authorities must give the person to whom the ... Read more

The appellant O.V. disagreed with the tax authority’s conclusion that the rent he paid to his father was not at the normal rate. In support of this claim, he submitted evidence. In connection with the conclusion of the donation contract, the O.V. became both the person liable and the beneficiary of a large easement over the property on plot No 31/1 and the co-owner of the land under the leased building, which was evidenced by documentary evidence, but which the tax administrator ignored and failed to assess. However, these are decisive facts which, in normal commercial relations, have a significant influence on the amount of rent. O.V. also rejected the method of calculating the normal price, which the tax authority determined on the basis of the arithmetic average of the lease contracts selected by it. It considers that this procedure is unlawful because the taxpayer has no possibility of obtaining input information. The normal price can be determined as the ... Read more