SAC on received intra-group services
In judgment 10 Afs 93/2021–69, the Supreme Administrative Court (SAC) ruled on the tax deductibility of costs (expenses) incurred by a company for services provided by the group. In the tax administrator’s opinion, the company failed to support what services were received from the group, who specifically provided them, and when. The court held that the company must prove that intra-group services were actually received in the claimed extent and that they brought benefits.
The group provided services to the company in three areas: production-related advisory; assistance in refinancing of liabilities; and business support (IT, HR, management services, legal advice, etc.). The tax administrator denied the tax deductibility of the costs (expenses) on the grounds that the company did not sufficiently demonstrate that the services were in fact provided to it, and at what price.
As for the production advisory expenses, the Supreme Administrative Court granted the company's objections: the court held unreasonable the tax administrator's requirement that the company should have documented each individual production advice and quantified the related savings on which the supplier’s fee had been calculated. In the court’s opinion, it sufficed that the company had explained how the production advice affected the areas under review and what savings or production volume increases were achieved as a result.
As for services involving loan refinancing and support on the other hand, the SAC agreed with the tax administrator: in the court’s opinion, the company failed to support the conditions of the drawdown, or the amount of the credit provided to the group companies. It also failed to prove that the portion of advisory fees allocated to it, calculated based on the proportion of the drawdown to the total credit granted to the group, was correct. Moreover, it was not even clear from the documents what the service specifically involved.
For business support services, the documents and other evidence submitted (witness statements, e-mails) were not sufficient either. The company failed to support the actual content and the invoiced price for tens of millions of crowns. According to the court, the tax administrator's request to provide more detailed information on the received supplies rather than just general statements on individual areas of cooperation was justified.
Claimed extent and benefit of intra-group services must be demonstrated
The SAC’s conclusions show that the same rules generally apply to the tax deductibility of costs (expenses) for intra-group services and for services purchased from third parties. In particular, the company must demonstrate that it had actually received and benefited from the intra-group services to the extent claimed. At the same time, it must justify the price paid for the services; this is especially important when the total price is allocated among individual companies within the group using an allocation key.
In practice, we increasingly often see that companies do not have sufficient supporting documents to prove the receipt of the services, their extent and benefit, not only regarding related parties.
Although the judgment gives some guidance as to the extent of documents that can be reasonably required, we expect that in similar cases, the tax administrators will require very detailed documentation of the services received, especially within the group.