Czech court tightens rules for reduced withholding tax on royalties

In a recent decision, the court examined a case where a Czech provider of television programs paid royalties to foreign distributors, who then forwarded the payments to producers. However, the tax authority refused to grant the reduced tax rate under international treaties, as the distributors were considered mere intermediaries, not the actual beneficial owners.

The company argued that the lower tax rate should apply based on the country of the producers, but the court decided that without a direct legal relationship between the payer and the final recipient, this was not possible. Moreover, a simple declaration was not enough - additional evidence of beneficial ownership was required.

This decision means that Czech companies must be cautious with cross-border payments. If they cannot clearly prove who the beneficial owner is and what relationship they have with them, they must expect to pay the standard 15% withholding tax. The court thus highlights the need for thorough documentation and clear contractual relationships when making payments abroad.

For more detailed information, you can read the article prepared by our colleagues from the Czech Republic.