NSS k uplatnění ziskové přirážky na materiálové náklady

In judgment 1 Afs 2/2025 - 54, the Supreme Administrative Court addressed the issue of tax assessment concerning transfer pricing, specifically the exclusion of material costs from the cost base for profit markup.

A Czech company provided manufacturing services to its parent company and was compensated based on incurred costs and a markup. As part of this manufacturing service, the Czech company purchased material from the parent company and used it to produce final products, which it subsequently sold to an unrelated party.

Since the material was purchased by the parent company in close cooperation with the final customer and the Czech company's ownership of this material was purely formal-legal, the Czech company did not include material costs in the cost base for calculating the profit markup for the provided manufacturing service.

The tax administrator argued that the Czech company not only formally acquired the material into its ownership but also stored it, participated in ordering, quality control, and handling it. The Czech company thus performed certain functions and bore risks associated with the purchased material, and for this activity, it should be compensated with a certain markup on material costs.

The court agreed with the conclusions of the tax administrator and confirmed that formal ownership of the material is inseparably linked to bearing risks. Since the Czech company clearly did not demonstrate that the parent company bore the substantially prevailing part of the risks associated with the material, it is entitled to appropriate compensation related to the ownership of this material.

Authors:

Lucie Karpíšková

Jan Svoboda