Czech Republic: Beneficial owner of royalties under tax treaty (Supreme Administrative Court decision)

A Supreme Administrative Court decision determining the beneficial owner of royalties under an income tax treaty.

Beneficial owner of royalties under tax treaty

The Supreme Administrative Court held (6 Afs 56/2023) that in determining the beneficial owner of royalties under an income tax treaty, the broader context of the transactions and their economic implications must be considered, not just the formal provisions of the licenses.


The taxpayer paid royalties to distributors of television programs who were part of its corporate group, which were then fully passed on to the program producers. The tax authority asserted that the reduced withholding tax rate under the income tax treaty between the Czech Republic and the jurisdiction of the programs’ distributors did not apply because the distributors were not the beneficial owners of the royalties.

After considering whether the distributors had control over the royalties, without any contractual or legal obligation to pass it on to others, and economically benefited from the royalties, the court agreed with the tax authority that the distributors were not the beneficial owners of the royalties.

The court found that the beneficial owners likely were the program producers, who were residents of a jurisdiction with an income tax treaty with the Czech Republic providing for an event more favorable withholding tax rate on royalties. However, the court stressed that the burden of proving the royalties were passed on to beneficial owners qualifying for a favorable treaty rate lies with the taxpayer.

Read an April 2024 report prepared by the KPMG member firm in the Czech Republic


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