Czech Republic: Proof of expenses for intermediary services on imports from China

Obligation to have sufficiently robust evidence supporting the extent of the intermediary services as well as the existence of the intermediary

Intermediary services on imports from China

The Supreme Administrative Court addressed the burden of proof in a case concerning claims for expenses and amounts related to intermediary services for goods imported from China.

The high court—noting that in a number of countries, trading is virtually impossible without a local intermediary because of cultural differences—held that while different means of evidence may be available with regard to foreign trade, this does not relieve taxpayers of the obligation to have sufficiently robust evidence supporting the extent of the intermediary services as well as the existence of the intermediary.

The case identifying information is: 8 Afs 315/2019


The taxpayer imported goods from China. The tax authority reviewed the expenses and amounts charged by a Chinese company (the intermediary) for brokerage and goods inspection. Payments for the services were made to an account in the Seychelles. The taxpayer did not submit any written communication with the intermediary, did not produce any other written evidence regarding the performance of these services, and did not provide an explanation for making the payments to the Seychelles.

For intermediary services to be tax-deductible, taxpayers must submit a coherent and error-free chain of evidence supporting the provision of the services. The Supreme Administrative Court in its decision emphasized that taxpayers must not fail their obligation to produce at least some documents confirming the intermediary services. According to the high court, the primary means of proof is related communications with the intermediary that proves both the existence of a particular intermediary and the precise scope of the activities conducted by that intermediary.

In the present case, there was an issue regarding the fact that the taxpayer's intermediary representative had never been to China himself, although he was reportedly provided intermediary services in China. Contracts, invoices or customs documents do not themselves prove the provision of intermediation activities, according to the high court.

The Supreme Administrative Court emphasized that in terms of the quality of evidence, the argument of cultural differences when conducting trade abroad would not be sufficient and noted that foreign trade cannot be a reason for the preferential treatment of taxpayers subject to Czech law. While cultural differences may lead to a different type of evidence being submitted to the tax authorities, these differences do not relieve taxpayers of the burden to provide the requisite proof of the intermediary services. According to the high court’s decision, taxpayers must submit evidence of an appropriate quality of services—especially when the business activity concerned is of a continuous and extensive nature.

KPMG observation

Regarding intermediary services, taxpayers need to consider keeping in mind the burden of proof on the commencement of such services and then throughout the course of the intermediation services as well as gathering the necessary documents to prove both the person of the intermediary and the extent of the activities conducted.

Read a June 2022 report prepared by the KPMG member firm in the Czech Republic


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