Does your parent company provide you with specific technical services? Documenting them may be trickier than you thought!
12 June 2022
In previous articles, we have often discussed the adjustment of costs that a parent company must incur in connection with holding a subsidiary. In a recent judgment of the Supreme Administrative Court, we were interested in a case law that dealt with the opposite.
The subsidiary urgently needed support in the form of technical assistance. The subsidiary itself did not have this knowledge. The parent company was in principle able to provide it with this very specific knowledge.
However, the tax authorities were not convinced that the Korean parent company had sufficiently proved the expenditure on services. The administrator was not satisfied even after being provided with a contract, invoice, list of technicians performing the work and copies of travel documents. According to the tax administrator, the actual scope and content of the services rendered and the purpose of the work could not be deduced from these documents.
The tax administrator's claims were corroborated by the Supreme Administrative Court. It confirmed that it was not entirely clear from the documents submitted what the scope and content of the technical support was. It was not possible to clearly attribute the actual activities to the individual technicians who had travelled from abroad. The taxpayer further sought to produce airline tickets, passports and technical reports. According to the court's statement, it cannot be clearly established that these persons were the ones who were supposed to carry out the activity. Even the taxpayer's suggestion that it would question the personnel who were in charge of keeping records of persons entering the company's premises and who would certainly confirm the regular arrival of these technicians did not help.
It is unlikely that highly specialised Korean technicians came to the Czech Republic just for a spa treatment. However, it is also clear from this case that some tax authorities allow for a similar possibility. The possibility of not defending this very specific technical assistance was apparently not admitted even by the taxpayer. It did not expect such a scrupulous need to prove the details of the technical assistance and, from the logic of the situation, probably did not admit any doubt at all.
Think about how your company can document similar expenses. Consider whether there are other ways in which you can safely demonstrate similar activities. First, I recommend that you read this court decision in detail and take appropriate action depending on the specific situation for similar activities on a larger scale.