The case Czech Republic vs. Aufeer Design s.r.o., decided by the Supreme Administrative Court of the Czech Republic in November 2025 (judgment 8 Afs 92/2024-53), sets a key precedent in the area of taxation and transfer pricing. It identifies relationships “between other types of related parties” and examines the economic rationality of certain advertising expenses, whose inflated prices and poor documentation reflected a structure geared toward generating tax rather than commercial effects.
The decision clarifies how transactions that are apparently independent but, in practice, show sufficient evidence of economic alignment to justify an analysis typical of related parties should be evaluated.
1. Background to the case and nature of the dispute
Aufeer Design s.r.o., a company in the automotive design and engineering sector, reported significant advertising expenses during 2015 and 2016, channeled through HERA s.r.o., an intermediary agency. These expenses corresponded to the display of banners at sporting, cultural, and social events, but the Tax Administration found that the prices invoiced were between 3.9 and 6.7 times higher than the direct prices charged by the event organizers to independent third parties.
Even after applying a reasonable agency margin (42–47%), the amounts were still unjustifiably high. This situation, together with a series of operational and contractual irregularities, led the authority to reclassify the relationship between Aufeer and HERA as a “other type” relationship, thus enabling an adjustment based on arm’s length prices using the CUP (Comparable Uncontrolled Price) method.
2. Key elements identified by the Court
Significant contractual deficiencies
One of the most revealing aspects of the case was the weakness of the contractual documentation. The agreements with HERA did not specify basic details such as the exact location of the advertisements, their duration, size, or verifiable advertising conditions.
The Court emphasized that these gaps were not observed in contracts that Aufeer had with other suppliers, which showed differential treatment and was inconsistent with normal commercial practices.
Absence of economic analysis or effectiveness assessment
The company also failed to conduct market studies, price comparisons, or performance or impact checks. For the Court, this lack of diligence demonstrated that the payments did not respond to a real expectation of obtaining commercial benefits, but rather to a structure functionally oriented toward generating deductible expenses.
Intermediaries and atypical commercial patterns
The operation included chains of intermediaries previously associated with irregular practices in relation to VAT, which reinforced the perception of atypical economic behavior. Although the Court clarified that it was not ruling on fraud in this case, it did consider this context as an additional indication within the set of anomalies.
Prices significantly higher than market prices
The amounts paid were compared with direct prices from event organizers, grouped by homogeneous characteristics and categories. Even applying an agency margin of 42–47%, the result still showed unjustifiable overpricing.
The Court described this difference as indicative of a relationship that deviates from the behavior between independent parties.
3. Methodological assessment: Validation of the CUP method
The Tax Administration constructed its analysis of comparable prices by requesting information directly from event organizers, which allowed it to obtain primary and verifiable references. Subsequently, a standard agency margin, calculated statistically, was applied.
The Court considered this approach to be sound, meticulous, and methodologically aligned with internationally accepted practices.
In contrast, the reports submitted by Aufeer—including studies on brand value and supposedly comparable price ranges—were dismissed for their lack of specificity, excessive generality, or methodological breadth, which prevented them from being used as probative evidence.
Important: the Court reiterated that there was no obligation to appoint a new expert or to assess reports that did not provide sufficient technical evidence.
4. Final decision and conclusions of the Court
After analyzing the circumstances as a whole, the Court determined that:
- The relationship between Aufeer and HERA had been structured in a manner incompatible with normal commercial logic and that the predominant purpose was to reduce the tax base.
- The reclassification as “other related parties” validated the adjustment under the CUP method.
- Aufeer’s appeal was rejected, confirming the finality of the decision and without allowing for reimbursement of procedural costs.
5. Practical implications for transfer pricing management
The case sets a valuable precedent in several respects. First, it shows that the absence of a direct corporate relationship does not prevent two parties from being considered related if there is sufficient evidence of a structure designed to produce tax effects. Economic substance, rather than form, becomes the defining element.
It also highlights that advertising expenses—particularly those in opaque markets or with chains of intermediaries—are a common area of risk, where documentation and price justification must be especially rigorous. Companies must demonstrate not only that prices are reasonable, but also that the expense has a real economic purpose that can be verified.
Finally, the ruling reaffirms the preeminence of the CUP method when primary prices are available. The availability of direct market values makes its application a powerful tool, often more persuasive than general studies or expert reports that do not reflect actual comparable conditions.
Specialized advice to strengthen your transfer pricing compliance
In a tax environment where economic substance, contractual consistency, and correct pricing are becoming increasingly important, having a solid transfer pricing strategy is essential. At TPC Group, we support companies in all sectors in identifying risks, evaluating their intercompany operations, applying appropriate methodologies, and preparing documentation that can withstand audits or litigation. Our team can help you review your internal policies, validate your prices, and ensure compliance with the latest international standards.
Source: TPCases