The Supreme Administrative Court (SAC) overruled the decision of the Regional Court in České Budějovice in the case of the creation of a Permanent Establishment in the Czech Republic, as it concluded that the company (a German tax resident) did not have a dependent agent here.
The SAC stated in its judgment that the Regional Court misinterpreted the double tax treaty and related regulations and did not sufficiently deal with the definition of an independent agent which negatively determines who is not a dependent agent.
According to the SAC, in case of a company operating in the Czech Republic, the features of independent agent were fulfilled as its services were used due to the language skills of its employees, its activities were not subject to orders or extensive control by the German tax resident, and it did not participate directly in the business risk of the company. The agent also performed the ordered services as part of its standard activities provided also to other clients.
In its argumentation, the SAC also referred to its previous judgment from 2013 and pointed out that in case of interpretative difficulties of international treaties, which the treaty on the avoidance of double taxation between the Czech Republic and Germany is, the procedure foreseen by the Vienna Convention on the Law of Treaties can be followed meaning that in case of international taxation, also the commentary on the OECD Model Double Tax Convention can be used, as on its basis the respective double tax treaty between the Czech Republic and Germany was concluded.