NSS rozhodl o daňové ztrátě způsobené příkazem mateřské společnosti

The Supreme Administrative Court ("SAC") recently upheld the tax authority's refusal to recognize a tax loss due to a change in production activity (file no. 3 Afs 165 / 2024 – 67).

A Czech company transitioned from manufacturing televisions to producing components for the automotive industry based on a decision from its parent company. As a result of this change, the company incurred significant costs that led to a tax loss. The tax authority did not recognize this loss, arguing that the parent company should have compensated the Czech company for these costs.

According to the regional court, this was not a "classic" business transaction (contractual obligation relationship), but rather a decision by the parent company regarding the business management of the Czech company, and it ruled in favor of the Czech company.

The SAC overturned the regional court's ruling and returned the case for further proceedings. Among other points, the SAC emphasized that an order from the parent company (e.g., the initiation of production mentioned above) can be considered a business relationship subject to transfer pricing rules if it leads to economic consequences that would not occur between independent enterprises.

We will analyze this ruling in detail in the next issue of our tax and legal news.

Author:

Tibor Borodáč