SAC: The conditions for exemption of license fees and royalties will be stricter


The Supreme Administrative Court (SAC) recently ruled on the issue of exemption from income tax for the license royalties flowing abroad. The tax office rejected a UK taxpayer’s request for exemption of royalty income from a related party because, in its view, it did not meet the conditions of real beneficial ownership of the income. The British company obtained a license available from related persons; it subsequently granted this license to a Czech company as a sublicense. Subsequently, based on the concern agreement, it was obliged to transfer most of the income from license royalties to these related companies.

The Supreme Administrative Court supported the conclusions of the tax office and, in accordance with the jurisprudence of CJEU, confirmed that this company was not the real beneficiary of the income, as it did not have the mandate to freely dispose of the income from the license royalties.

In our opinion, this judgment has significant implications for business practice and the sphere of international taxation.