The Czech Republic’s Supreme Administrative Court issued a ruling on the concept of beneficial ownership concerning royalty payments.
The case centred around Avon Cosmetics Limited, a UK company based in Northampton, which granted sublicenses to Financial Appeals Directorate, a Czech company headquartered in Masarykova 427/31, Brno. At the time, the UK was a member of the EU, and Avon Cosmetics sought an exemption on royalty payments for sublicenses under the EU Interest and Royalty Directive.
However, a dispute arose when Avon Cosmetics Limited’s beneficial ownership of the royalties and its eligibility for the exemption were challenged. It was contested that the UK company would only be eligible for royalty payments exemption if it transferred all the received royalty funds to other related entities.
The Court in its decision ruled that Avon Cosmetics was not the beneficial owner of the royalties, which forfeited its right to exemptions, citing the following reasons:
- Avon Cosmetics did not have the authority regarding how its funds would be utilised;
- The Court ruled that a beneficial owner of royalties must have complete authority on how to use their funds;
- Avon Cosmetics was contractually obligated to transfer the majority of the royalties to other parties, which is contrary to its eligibility for royalty payment exemptions.
