Tax Treaty Case Law around the Globe 2014
1. Aufl. 2015
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S. 101Chapter 10 Czech Republic: Thin Capitalization Rules and Associated Enterprises
Danuše Nerudová
10.1. Introduction
Case 2 Afs 71/2012-87 belongs to the category of Czech case law on international taxation, which does not in fact comprise many cases. The reason for such a categorization is that besides the procedural issues which the judgment addresses, it also addresses the issue of the application of domestic special anti-avoidance/thin capitalization rules (i.e. reclassification of excessive interests on share in profit) in a tax treaty situation. Moreover, the Court was dealing with the issue of whether the term "special relationship" in the Czech Republic-United Kingdom Tax Treaty can be identified with the term "associated entities" in the Czech Income Tax Act., In such a case, it would be possible to reclassify the interests exceeding the limit of thin capitalization on dividends subjected to the withholding tax in accordance with Czech domestic regulation as well as with the respective double taxation treaty.
10.2. Facts of the case
British American Tobacco (Czech Republic), s.r.o. (BAT), a company resident in the Czech Republic, received a loan (on the operating activities) from...