On 31 August 2026, the Czech Constitutional Court (Ústavní soud) set aside a judgment of the Supreme Administrative Court (SAC) concerning the tax deductibility of interest expenses between related parties. The Constitutional Court held that the SAC failed to adequately address the taxpayer’s substantive arguments regarding the application of transfer pricing rules and the arm’s length principle. This ruling reinforces the fundamental procedural right of taxpayers to have all relevant legal arguments considered by the court of last instance. The case involved a corporate taxpayer challenging the tax authority’s recharacterization of intercompany loan interest as a disguised dividend, invoking OECD Transfer Pricing Guidelines and domestic thin capitalization rules. The Constitutional Court emphasized that the SAC’s obligation to provide a reasoned decision extends to engaging with the taxpayer’s interpretation of both domestic law and international standards. This precedent strengthens taxpayer protections in transfer pricing disputes and signals stricter judicial review standards for the SAC.
Key Takeaways
- Mandatory Argument Consideration: The SAC must explicitly address each substantive argument raised by taxpayers in transfer pricing and thin capitalization cases; failure to do so constitutes a violation of the right to a fair trial.
- Strengthened Transfer Pricing Defense: Taxpayers can now more confidently raise complex OECD guideline interpretations, knowing courts must engage with them rather than dismiss them summarily.
- Precedent for Future Disputes: This decision will likely lead to more detailed SAC judgments and may encourage taxpayers to pursue constitutional complaints where lower courts overlook key arguments.
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.
Source: Read Official Announcement