Rozsudek krajského soudu ke srážkové dani z doměrku převodních cen

The Regional Court in Brno recently issued a decision, file no. 29 Af 8/2024-53, concerning a lawsuit filed by a Czech company against the tax authority’s procedure in determining withholding tax. This case was directly related to a dispute over transfer pricing setup, which we informed you about last year HERE.

The tax authority assessed withholding tax on the Czech company due to the identified difference between the agreed price and the arm’s length price, which under the Income Tax Act is considered a share in profit and thus generally subject to withholding tax.

In this case, the actual recipient of the profit share was the parent company based in Taiwan. Since there was no double taxation treaty or agreement on exchange of tax information between the Czech Republic and Taiwan at that time, the tax authority assessed withholding tax at a rate of 35%. Prevention of double taxation concerning Taiwan has been regulated by a special law only since 2020.

Besides determining the withholding tax rate (35% vs. 15%), the court also addressed the timing of the request to submit the withholding tax return and the subsequent initiation of the tax audit.

The claimant argued that Taiwan was not a tax haven and that the absence of a double taxation treaty was due to political reasons. Therefore, the 35% rate should not be applied. The court completely rejected this argument.

The court also dismissed the claimant’s argument that sending the request before completing the transfer pricing tax audit was purely purposeful to avoid the expiration of the deadline for assessing withholding tax, especially since the tax authority waited for the outcome of the transfer pricing audit before initiating the tax audit itself.

The court thus upheld the tax authority’s procedure and dismissed the lawsuit as unfounded. The company has filed a cassation complaint against the decision of the Regional Court, and the dispute is thus advancing to be heard by the Supreme Administrative Court.

Author:

Klára Kišková