The applicant, ARROW International CR, a.s., seeks a judgment of the Supreme Administrative Court annulling the judgment of the Regional Court, and referring the case back to that court for further proceedings. The question of whether the applicant carried out business transactions in the tax year 2005/2006 with a related party (Arrow International, Inc., hereinafter referred to as ‘Arrow US’) in a manner which did not comply with the principles of normal business relations and whether, as a result, the applicant’s basis for calculating the corporate income tax rebate was unjustifiably increased and the special condition for applying the tax rebate under Article 35a(2)(d) of Act No 586/1992 Coll. was breached is decisive for the assessment of the merits of the present case, on income taxes, as in force until 31 December 2006 (‘the Income Tax Act’). Pursuant to Section 35(6) of the same Act, such an act has the effect that the entitlement to the discount ceases and the taxpayer is obliged to file additional returns for all tax periods in which the discount was claimed. The applicant was therefore also under that obligation in respect of the tax year 2002, for which it was additionally assessed by the decisions of the administrative authorities in the amount of CZK 7 505 031 (‘the tax’). According to the contents of the administrative file, the Financial Directorate concluded that the part of the applicant’s activities which consisted in the distribution of medical devices from the Arrow group to customers in the Czech Republic, whereby the goods distributed by the applicant were purchased from Arrow US, did not comply with the principles of normal business relations. On this distribution, the applicant achieved a gross profit margin of 171,45 % in the tax year 2005/2006, whereas other distributors of similar goods found by the tax authority achieved average gross profit margins ranging from 28,40 % to 80,60 %. In each case, the tax authorities found that the goods which the applicant had purchased for redistribution in the Czech Republic from Arrow US at a certain price had previously been sold by the applicant itself – as goods manufactured by it – to Arrow US at a higher price than the price at which it then bought them from Arrow US. Furthermore, the tax authorities found that the applicant’s gross profit margin in 2005/2006, the last period of the investment incentive, had increased significantly compared to the previous and subsequent tax periods, roughly three to four times. The Financial Directorate found that the distribution of Arrow medical devices in the Czech Republic was an activity separable from the applicant’s other activities (production of medical devices for the Arrow group or central purchasing of medical devices for the Arrow group from other manufacturers in the Czech Republic) from an economic point of view. The conclusion that the distribution of Arrow medical devices in the Czech Republic is separable from the applicant’s other activities was also reached by the Financial Directorate taking into account the fact that this activity is significantly less important for the applicant from an economic point of view than the other activities (the two types of distribution activities together accounted for only 6 % of the applicant’s total turnover, while the rest of the turnover was accounted for by the production of medical devices for the Arrow group). Thus, the Directorate of Finance treated the distribution of medical devices of the Arrow group in the Czech Republic as a separate activity for the applicant and as such assessed it separately in terms of the prices negotiated between the applicant and Arrow US in the context of that activity, which differed from the prices (and the gross profit margins based thereon) of other distributors of medical devices in the Czech Republic according to the criterion of the gross profit margins achieved therein. Thus, in considering whether the applicant had breached the special conditions for the application of the tax rebate pursuant to Article 35a(2)(d) of the Income Tax Act, the Financial Directorate considered only the prices (and the markups based thereon) achieved in the context of that one of the applicant’s activities, since it considered that it should be regarded as an economically relatively separate activity, not sufficiently linked to the applicant’s other activities and, on the contrary, separable from them in those respects. It therefore did not accept that the applicant’s activities should be considered as a whole (the sum of all their activities taken together) in the sense that, for the purposes of examining whether there has been a breach of the conditions of that provision, it is possible for significant profits from one activity to be offset by smaller profits from other activities, so that the overall profitability of the applicant’s business remains within the limits of what is normal for other comparable operators. The Regional Court agreed with those conclusions of the tax authorities and therefore dismissed the action brought by ARROW International CR, a.s. as unfounded. An appeal was then filed with the Supreme Administrative Court Judgement of the Court The Court dismissed the appeal and decided in favour of the tax authorities. “In the present case, the tax authority bore its burden of proof to establish that the complainant’s business operations involved transactions with the persons referred to in section 23(7) of the Income Tax Act which, by their specific objectively identifiable features, appeared outwardly, on the basis of rational consideration, not to correspond to the economic principles of normal business relations. First of all, it established that the three types of activity of the applicant, which could be regarded as relatively independent of each other in terms of the conditions of their technical implementation (independent in the sense that, in principle, each of them could be carried out independently in such a way that – in the abstract – it could make economic sense in itself, and that none of them necessarily required, in itself, either for production or commercial reasons, legal or otherwise, to operate ...