Beneficial owner of interest and silent partnership
The Supreme Administrative Court dealt with beneficial ownership of interest in the context of the existence of a silent partnership agreement.
In the case in question, a Czech taxpayer paid interest to a company based in the Netherlands. The interest was paid under a loan agreement concluded between the entities. The Czech payer of interest assessed the situation as meeting the conditions for the application of the double taxation treaty concluded between the Czech Republic and the Netherlands.
However, in the course of tax proceedings, the tax administrator obtained (from the Police of the Czech Republic) a silent partnership agreement allegedly concluded between the Netherlands-based company and a third company based on the Isle of Man as a silent partner. In the tax administrator’s opinion, the right to the interest thus did not only belong to the Netherlands-based company, but to its silent partner, the legal owner of the income. According to the tax administrator, profits were allocated to both partners: in this case, 99% to the Isle of Man company, and only 1% to the Netherlands-based company. At the same time, the silent partner’s profits were not subject to Dutch income tax.
According to the tax administrator, the Isle of Man-based company was the beneficial owner, even though the interest was paid to the Netherlands-based company under a loan agreement. The SAC judgement does not provide any detailed statement of the grounds for this conclusion; it merely states that the SAC opinion is consistent with that of the tax administrator and the regional court.
The SAC judgment also dealt with many other procedural issues, e.g. a tax inspection and its closing, international request for information, etc.