The matter of the dispute was an acquision witch had been financed by a debt push down resulting in interest payments that reduced the taxable income of a Czech subsidiary.
The tax authortites disallowed the interest deductions.
Decision of the Court
The Court decided in favour of the tax authorities.
Excerpt in English
“The Court is in no doubt that the circumstances of the entire restructuring of the Johnson Controls group, with its impact on its members in the Czech Republic, as proven in the tax proceedings, lead to the conclusion that the purpose of Section 24(1) of the ITA was not achieved, since the acquisition loan or the interest payments arising therefrom do not, by their actual nature, constitute expenditure for the achievement, securing or maintenance of income generated by the production activities of JCAS (objective criterion). At the same time, the tax authorities have demonstrated, and the applicant has failed to demonstrate to the contrary, that obtaining a tax advantage was clearly the determining motive for the conduct of the parties involved, including the applicant (subjective criterion). According to the Court, the circumstances relating to the rationality of the transaction, in conjunction with the information concerning the interconnection of the parties involved, show that both the objective and subjective aspects of the abuse of rights are fulfilled, since it can be inferred from them that the applicant’s conduct was not motivated by a real and legitimate economic objective (it had no real economic justification), with the exception of the only visible result, which was precisely the acquisition of an unjustified tax advantage.”
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