Judgement of the Supreme Administrative Court (the SAC) – the beneficial owner of royalties

In a recent judgement, the SAC confirmed the key rules for the determination of the beneficial owner in the application of licensing agreements. It defines the beneficial owner of royalties by the following features: (i) the beneficial owner must actually receive and have control over the income; (ii) the beneficial owner must have the right to freely dispose of, control, and use the income in question without being restricted by contractual or legal obligations to pass the income on to others; and (iii) the beneficial owner should derive economic benefit from the income - that is, it can benefit from the income without any obligation to pass it on.

The Court stressed that the burden of proof is on the taxpayer to prove that it has passed on the royalty payments to the beneficial owner within the meaning of the international treaties. The SAC's decision also suggests that it is possible to determine the beneficial owner of royalties, even if he is not the same as the person named as the recipient of the royalties in the contract (even during tax proceedings, where the wider context and economic consequences of the transactions - and not just the formal details of the contract - must be taken into account when assessing beneficial ownership).