Krajský soud k ovlivnění nezávislé transakce spojeným podnikem

Regional Court on influencing of an independent transaction by an affiliated company

The Regional Court in Hradec Králové, in a recent judgment[1], expressed its opinion on the tax authorities' additional tax assessment due to a loss-making production under the order of a foreign parent company.

The Regional Court stated that although the Czech company sold its products also to third parties, all of its production was based on orders and directives received through negotiations and decision-making powers of the Japanese parent company. According to the Regional Court, the company was engaged in a fictitious (or hypothetical) production service with its parent company resulting in loss-making production for which it should have been compensated.

The Regional Court also based the existence of the fictitious (hypothetical) transaction on the personal interconnectedness of the company's top management (e.g., president and vice-president) consisting of Japanese employees seconded by the parent company. There was no position above these employees from which they could be managed by the Czech company.

Let us see whether and how the Supreme Administrative Court will eventually deal with the above.

We will discuss this decision in detail in the next edition of our Tax and Legal News.

If you have any questions, please contact the author of this article or the EY tax team with whom you regularly work.

Author:

Tibor Borodáč

[1] See the judgment of the Regional Court in Hradec Králové of 27 September 2024, No. 31 Af 3 / 2024 - 77