Czech Supreme Administrative Court on Beneficial Ownership of Licence Fees
The Supreme Administrative Court (the “SAC”) in the Czech Republic dealt with beneficial ownership in the context of licence agreements last month, and arrived at a conclusion in Case No. 4 Afs 63/2022 – 48 dated 21 February 2024 that where genuine benefits do not flow to an entity from licence fees, i.e. the entity is not free to determine how that finance will be used and cannot use it without any restrictions, such entity is not the beneficial owner of that finance.
What Was the Dispute About?
In the concerned case, the beneficial owner concept for the purposes of a return on exemption from a local tax on licence fees under Section 38nb of the Income Tax Act was involved. In other words, licence fees are tax exempt between entities related on a capital basis under the law in case that the licence fees’ recipient is the fees’ beneficial owner and, at the same time, a tax exemption application was filed under the above-provided provision.
A tax exemption application of a British corporation, which was the licence fees’ recipient, was rejected by a tax administrator under the above-mentioned provision, the reason being the corporation’s failure to prove that it is the licence fees’ beneficial owner. It should be stressed that the corporation was obliged to pay a substantial portion of those fees to other related parties under an agreement.
The Supreme Administrative Court’s Statement
The Supreme Administrative Court agreed with a decision of the Municipal Court in Prague, which arrived at a conclusion that the British corporation was not the licence fees’ beneficial owner. The SAC stressed in this case that benefits from the fees did not flow to the corporation in economic terms because it was not free to decide how the finance will be used and was not able to use the finance without any restrictions.
As a consequence, a generalised conclusion can be arrived at on the basis of the above-provided judgment that the beneficial owner is an entity that has to be able to decide on the obtained finance’s use, and to freely manage it without being obliged to deliver the finance to another entity on the basis of an agreement.
If you want more information on this topic or need to deal with paying licence fees and are uncertain about tax implications thereof, please feel free to contact us. We are ready to help you.
Michaela Kozminská
kozminska@clarksonhyde.cz
