Taxpayer submitted differing and incoherent calculations
The Supreme Administrative Court (SAC) held that the taxpayer failed to prove the actual amount of聽 its nondeductible indirect shareholding expenses.
Background
Under Czech income tax law, expenses incurred in holding shares in a subsidiary are not tax-deductible, and indirect expenses are presumed to be 5% of dividends received unless the taxpayer can prove a lower amount. The presumption is based on the principle that dividend income is typically tax-exempt, and therefore related expenses cannot not be deductible.
Summary
The tax administrator rejected the taxpayer's declared indirect expenses of CZK 96 million, citing calculation inconsistencies and errors. The administrator noted that the company improperly reduced its cost base by including income from services to subsidiaries, invoicing guarantees, and tax depreciation charges and tax residual values. Additionally, the company failed to include management wage expenses in the cost base. Due to these issues, the administrator set the indirect expenses at 5% of dividends received, totaling CZK 286.5 million.
The SAC held that the taxpayer failed to prove the actual amount of indirect expenses as it only submitted differing and incoherent calculations that lacked a聽consistent methodology and contradicted its own calculations.
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