Judgment of the Supreme Administrative Court on advertising services or what to watch out for during tax audits

The recent judgment of the Supreme Administrative Court (SAC) in the ALBIXON case brings several important messages for the practice of Czech companies. In the present case, the Supreme Administrative Court upheld the tax administrator’s procedure in the dispute regarding the tax deductibility and the amount of costs for advertising services. The judgment has implications beyond advertising services – it shows what to look out for when working with business partners and defending tax costs.

Key conclusions for practice

1. An invoice is not enough – you have to actually provide proof of the services

Part of the advertising costs were excluded because the company did not prove that the services were performed at all. The photographs and leaflets submitted were inconclusive (e.g. capturing other events or other advertisements).

Recommendation: Each transaction should be supported by evidence, e.g. photographs, confirmation from the organisers, etc., to demonstrate the link and logical continuity between the campaign and the invoice. Formal documents such as a contract and invoice are not enough.

2. Risk chains of partners – suspected links 

The tax administrator proved that the transactions were between so-called otherwise related parties, mainly due to other circumstances of the transaction – a chain of dubious companies (virtual offices, same representatives, cash payments, unreliable payers).

Recommendation: An untested supply chain can lead to additional tax assessment, even if the price does not look extreme at first glance.

3. Determination of the usual price – tax administrator’s approach upheld

The tax administrator determined the normal price on the basis of the prices from the first advertisers and a reasonable margin for the agency. The SAC confirmed that such a procedure is legitimate and in accordance with the principles of transfer pricing. The tax administrator thus proved that ALBIXON purchased services from the advertising agency at a price higher than the normal market price.

Recommendation: Be cautious and check the reasonableness of the price of the services you purchase.

4. Expert opinions are not omnipotent

ALBIXON submitted three expert reports, but none of them were accepted by the courts or the tax authorities – either they were not related to the case or they dealt with incomparable transactions.

Recommendation: Expert reports must be precisely focused on the specific transaction and comparable conditions.

Why is this judgment important for Czech companies?

The judgment is a warning that an invoice and a contract alone are not sufficient to constitute consideration received. Businesses must be able to demonstrate that the service was actually provided, that the price is in line with normal market conditions and that the supply chain is transparent.