As we have already described in the previous article, the subject of the dispute was the question of whether it is possible to grant an exemption from withholding tax on royalties in the Czech Republic retrospectively, i.e. for a period preceding the submission of the application and the issuance of the tax administrator’s decision. In June 2019, the German company filed an application for exemption under Section 38nb of the ITA for the 2014 to 2018 tax periods. However, the Tax Office rejected the application for the years 2014, 2015 and 2016 on the grounds that the two-year period within which, in its view, it was possible to apply for the exemption had already expired for those years. It based this on the fact that Czech law does not provide for an explicit deadline for filing an application for exemption, and therefore the two-year period under Article 1(15) of Directive 2003/49/EC can be used, which applies to the refund of tax already withheld. Thus, the crux of the dispute was whether the Directive itself lays down a time limit for claiming the exemption, or whether the exemption can also be granted retrospectively if the substantive conditions are met. It was these questions that the Supreme Administrative Court subsequently referred to the Court of Justice of the EU.

In its judgment in Case C-828/24, the CJEU confirmed that Directive 2003/49/EC does not preclude a Member State from granting an exemption from withholding tax retrospectively on the basis of a decision under Article 1(12). Thus, the exemption may also cover a period prior to the issuance of the exemption decision and, where appropriate, even a period prior to the submission of the certificate and supporting information that the Member State may reasonably require for issuing that decision. At the same time, the CJEU concluded that the Directive does not set any specific deadline at the EU level for the submission of such documents, nor does it in itself limit the period for which the exemption may be granted retroactively. Any such time limits must therefore stem from national legislation – the wording of the directive itself cannot be applied to the detriment of the taxpayer without further ado.

In the Czech context, the judgment supports the conclusion that an exemption decision can also be issued retroactively for periods for which the time limit for assessing tax has not yet expired. This conclusion also corresponds to current administrative practice, which is explicitly reflected in the General Financial Directorate’s Instruction D-59: “… This exemption may also be applied retroactively on the basis of a decision issued under Section 38nb of the Act for periods in respect of which the time limit for assessing tax has not expired…” The CJEU judgment thus brings greater legal certainty for the recipients of royalties and payers who have withheld tax in the past and subsequently seek to apply the EU exemption. It will now be up to the SAC to reflect these conclusions in its final decision in the case.