CJEU rejects non-recognition of entitlement to deduction for costly advertising

14. December 2021
  • Richard Knobloch

We would like to draw your attention to an interesting, and for many companies certainly very positive, decision of the Court of Justice of the EU in case C-334/20 Amper Metal Kft., which concerns the claim for deduction of advertising services, the cost of which was disproportionate and which did not lead to an increase in the company's turnover. At least this is how the Hungarian tax authority assessed the nature of the advertising services in the case in question, where Amper Metal Kft., a company operating in the electrical equipment sector, purchased advertising services in the form of stickers bearing its name on cars in the context of championship races in Hungary, disallowing the claimed deduction and imposing further penalties.

However, the Court of Justice of the EU rejected the procedure of the tax authority. The issue of pricing is determined by contractual agreement between the parties and does not affect whether the taxable supply has taken place. The Court also rejected the requirement that the claim for deduction be subject to the condition that the taxable supply received must result in an increase in the company's turnover. On the other hand, the condition that must be examined in order to claim the deduction is the link to the taxable supplies carried out, either a direct link to a specific output supply or, in the case of overhead costs, a link to the overall economic activity of the taxable person.  

Given that we have also seen a number of cases where the tax administrator assesses and often questions deductions claimed for advertising or marketing services, we are convinced that the reasoning in this decision may be useful in practice. If you have any questions, please do not hesitate to contact us, of course.

As for the income tax solution, this may be different. We have summarized the conclusions of interesting recent judgments in the following article by our colleague Jakub Štefáček.

Author: Richard Knobloch