NSS potvrzuje velmi přísný přístup k prokazování reklamy

SAC confirms very strict approach to proving advertising expenses

The tax office rejected the tax deductibility of the entire advertising cost of approximately CZK 2 million. CZK, although part of the agreed services was undoubtedly provided.

The case concerned the projection of advertising on LED panels. The taxpayer documented the receipt of the services not only by contractual documentation, but also by playlists with time data when its advertisement was broadcasted, summons of witnesses and correspondence from the owner of the LED panels.

The tax authority found inconsistencies in the evidence submitted, in particular regarding the frequency of the advertising messages. In its decision[1], the SAC devoted a surprisingly large amount of space to the wording of the contractual arrangement according to which the advertisement was to be broadcast at least twice in every hour and at least 26 times per day (which seems superfluous, since the first part of the condition already implies an obligation to display 48 times per day). Other documents indicated a different frequency (playlists lower, the letter from the owner higher than the contract required).

The SAC notes that the photographs demonstrate only one specific display of the advertisement and therefore cannot prove the overall scope of the services; moreover, their metadata is relatively easy to falsify, so they should generally be taken with a grain of salt.

Finally, the SAC also rejected the taxpayer's objection that the tax authority had not acted correctly in disallowing even part of the advertising services due to the lack of clarity about the overall scope of the services. The principle of "essential costs" did not apply here, although, for example, the witness statements also confirmed that the performance took place. In the words of the SAC, there was no dispute about that. What was disputed was the extent of the performance and the conditions for the application of the so-called "essential costs" were not met, in accordance with the Extebded Senate of the SAC[2].

This is another fairly strict decision which illustrates the very high standard of proof required for advertising services by both tax authorities and administrative courts. We therefore recommend that in practice, great care is taken when formulating contracts, setting up control processes and preparing related documentation. Inspiration can also be found in the extensive case law of the Supreme Administrative Court - of course, especially in cases that have been decided more favourably for taxpayers.

Author:

David Kužela

[1] 5 Afs 208/2023- 42 - html

[2] Our alert here: Extended Senate of the SAC on the so-called essential costs | EY Czech Republic