Czech Republic vs RR Donnelley: JUDGMENT
Case Information
- Court: Supreme Administrative Court (SAC) of the Czech Republic
- Case No.: 7 Afs 31/2024 – 27
- Applicant: RR Donnelley Czech s.r.o.
- Defendant: Odvolací finanční ředitelství (Czech Tax Appeals Directorate)
- Judgment Date: 28 February 2025
The case Czech Republic vs. RR Donnelley Czech s.r.o. revolved around a transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of... More dispute concerning the application of Section 23(7) of the Czech Income TaxIncome Tax is a direct levy imposed by governments on the income generated by individuals, corporations, and other entities within a specific jurisdiction. It serves as a major source of revenue for governments and funds various public expenditures, such as infrastructure projects, healthcare, education, national security, and welfare programs. The tax is generally calculated as a percentage of the taxable... More Act (ITA). The core issue was whether RR Donnelley Czech s.r.o. had correctly applied the arm’s length principleThe Arm’s Length Principle (ALP) is a cornerstone concept in international taxation and transfer pricing. It requires that transactions between related parties, such as subsidiaries or affiliates within a multinational enterprise (MNE), mirror those that would occur between independent entities under similar circumstances. This principle ensures that each entity within an MNE is compensated fairly and transparently, based on the... More in a transaction involving the purchase of hard disk drives (HDDs) on behalf of Banta Ireland, a related entity.
The Specialised Tax Office initially assessed RR Donnelley Czech for an additional corporate income taxCorporate Tax refers to the tax imposed by governments on the income or capital of corporations. Corporations, considered separate legal entities, are taxed on their profits, meaning the income generated from their operational activities, investments, and other financial undertakings. This tax is generally a key revenue source for governments, helping to fund public services, infrastructure, and other essential functions. The... Moretax liabilityTax liability represents the total amount of tax owed by an individual or business to a tax authority, whether local, national, or international. This obligation arises through various forms of income, profits, or transactions subject to taxation laws and regulations. Understanding tax liability is essential for compliance and efficient financial management for corporations and individuals. It influences how businesses structure... More of CZK 61,650, along with a 20% penalty of CZK 12,312, arguing that the transaction had not been conducted at arm’s length. The company appealed to the Regional Court in Brno, which annulled the tax authority’s decision, citing insufficient justification for the reference price used by the tax administrationTax authorities are fundamental institutions within government frameworks, overseeing tax assessment, collection, and administration. Their operations ensure that tax laws are enforced and public funds are collected efficiently. This article delves into tax authorities' purpose, responsibilities, and structure, offering insights into their essential role in supporting government functions and economic stability. What is a Tax Authority? A tax authority is... More.