Nejvyšší správní soud k daňové uznatelnosti nákladů na služby

The Supreme Administrative Court on the tax deductibility of costs of services

Defending the tax deductibility of costs of services in front of the Tax Authorities can be in some cases relatively difficult as proved by the extensive case laws in this area. In a recent judgment 4 Afs 328/2021-44, the Supreme Administrative Court ("SAC") dealt with the taxpayer's argumentation relatively easily, and supported the tax administrator's conclusion that costs incurred in relation to received services could not be considered as tax deductible as the taxpayer did not prove that the expenses were incurred in connection with taxable income.

One of the areas audited was the justification of the tax deductibility of costs for consulting services related to international transactions. The SAC is consistently declaring that invoiced costs cannot be considered tax deductible unless the taxpayer proves that the activity was actually carried out by the supplier. The contract and the payment of the price stated in the contract alone are not sufficient for the deductibility of the cost. In the discussed case, the Tax Authorities refused to recognise the costs of the consultancy and mediation activities, as it was not possible to prove on the basis of the evidence submitted, that the services had actually been provided. In addition, the Tax Authority had overall doubts about the credibility of the claims submitted, as they were not consistent with the information found out in the context of international enquiries from the taxpayer's business partner.

Another point discussed was the cost of foreign business trip for which the taxpayer failed to prove that the trips were related to its business activities. Among other things, it was identified during the tax audit that the business trip was attended not only by the managing director of the company but also by other members of his family, and that the trip was organised by a travel agency. These facts raised overall doubts as to the business purpose of the business trip.

According to our practical experience, Tax Authorities pay close attention to costs of services during the audits. The requirements for documentation to prove tax deductibility are increasing. In order to justify the costs, it is essential to collect and maintain sufficient supporting documentation.

If you have any questions, please contact the authors of this article or the EY tax team with whom you regularly work.

Authors:

Ladislava Zamazalová

Ivan Zhurkin