Czech Republic vs STOCK Plzeň-Božkov, s. r. o., May 2023, Supreme Administrative Court, Case No 10 Afs 93/2021 – 69

Category: Services and Fees | Tag: , , , , ,
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STOCK Plzeň-Božkov, s. r. o. had deducted costs for production consultancy services, financial services and internal support services allegedly received from related parties.

The tax authorities disallowed deduction of the costs for tax purposes on the basis that the evidence provided by STOCK regarding the nature and pricing of the services was insufficient.

Judgement of the Supreme Administrative Court

The Court ruled in favour of STOCK in relation to the production consultancy services. The tax authority’s requirement that the company document each individual ‘piece of advice’ and quantify the benefits in minute detail was unreasonable. According to the Court, it is sufficient to explain how the production services were provided and what benefits the company derived from them.

The Court agreed with the tax authority’s conclusions regarding the financial services. STOCK did not document the conditions of withdrawal or the amount of credit granted to group companies. Furthermore, it did not prove that the part of the consultancy price allocated to it, calculated as the ratio between the drawdown and the total credit provided to the group, was correct. In addition, it was not even clear from the documents what the service specifically related to.

The court also agreed with the tax authorities on the internal support services. The documents, witness statements and e-mails provided by STOCK were not sufficient to prove that the services had been received.

 
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Related Guidelines

  1. TPG2022 Chapter VII paragraph 7.55While low value-adding intra-group services may provide benefits to all recipients of those services, questions may arise about the extent of the benefits and whether independent parties would have been willing to pay for the service or perform it themselves. Where the MNE...
  2. TPG2022 Chapter VII paragraph 7.54As discussed in paragraph 7.6, under the arm’s length principle an obligation to pay for an intra-group service arises only where the benefits test is satisfied, i.e. the activity must provide the group member expected to pay for the service with economic or...
  3. TPG2022 Chapter VII paragraph 7.32It may be necessary to perform a functional analysis of the various members of the group to establish the relationship between the relevant services and the members’ activities and performance. In addition, it may be necessary to consider not only the immediate impact...
  4. TPG2022 Chapter VII paragraph 7.17These services may be available on call and they may vary in amount and importance from year to year. It is unlikely that an independent enterprise would incur stand-by charges where the potential need for the service was remote, where the advantage of...
  5. TPG2022 Chapter VII paragraph 7.11In general, no intra-group service should be found for activities undertaken by one group member that merely duplicate a service that another group member is performing for itself, or that is being performed for such other group member by a third party. An...
  6. TPG2022 Chapter VII paragraph 7.8Some intra-group services are performed by one member of an MNE group to meet an identified need of one or more specific members of the group. In such a case, it is relatively straightforward to determine whether a service has been provided. Ordinarily...


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