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SAC imposes strict requirements for proving internet advertising

The Supreme Administrative Court continues in its strict trend with respect to the provision of evidence that advertising, in this case advertising on the internet, has taken place. According to the court, a screenshot or the administrator account from which the internet advertising was arranged are the only ways to record and prove advertising that takes place exclusively online. A confirmation of advertising provided by an advertising agency is not sufficient in this respect.

In the event of doubt, the taxpayer is obliged to prove the advertising expenses posted in the accounting records and subsequently claimed in the tax return. The SAC has recently set high requirements for proving advertising expenses, both in terms of their deductibility for income tax purposes and the right to deduct VAT. In its pre-Christmas judgment (10 Afs 74/2020-50 ), the SAC assessed whether the taxpayer had proved that the advertising on the internet had taken place to the extent declared and that the expenses relating to this advertising could be claimed as deductible. This involved proving that the advertising in the Google AdWords system (now Google Ads), arranged for the taxpayer by an agency, had occurred. The SAC agreed with the tax authority that in the case before the court, the taxpayer had failed to prove the delivery and receipt of the advertisement.

During the tax proceedings, the taxpayer submitted several means of evidence. To prove the receipt of an advertisement, the court considers it necessary to provide documentation not only in form of statements containing records of the number of searches and the number of times the website was opened, but also in form of screenshots capturing the advertisement directly in the Google search engine. According to the SAC, 'if the advertising is provided exclusively online, there is no other way of capturing it than by means of a screenshot.' In this case, however, the taxpayer submitted screenshots that were neither distinct from each other nor dated, and thus were insufficient to prove the tax deductibility of relevant advertising expenses.

The SAC believes that there is also another way to prove the receipt of an advertisement, which is the administrator account in the Google AdWords system from which the advertisement was to be served. Since the taxpayer in the case at issue did not arrange the advertising in Google AdWords directly but through an intermediary, they did not have access to the administrator account themselves and were therefore unable to identify it with sufficient certainty. They asked the tax administrator to verify the facts by accessing the administrator account, which both the tax administrator and subsequently the regional court refused to do. The SAC concluded that the tax administrator cannot be asked to search for and examine insufficiently identified means of evidence themselves.

For a possible tax inspection, it is therefore important to have not only relevant accounting documentation but also documentation of sufficient quality proving that the advertising has taken place, whether these are dated screenshots showing the advertising at different times or otherwise temporally identifiable records.