How to prove online advertising expenses?

In general, advertising costs provably incurred for the purpose of the presentation of the taxpayer's business activities and in order to generate, maintain or increase a taxable income are considered as tax deductible expenses. Slovak tax legislation does not contain a definition of presentation costs, and it is therefore necessary to consider these transactions on the individual basis, including all supporting documentation.

Proving internet advertising expenses was the subject of the judgment of the Czech Supreme Administrative Court No. 10 Afs 74 / 2020-50 ("SAC"). The SAC considered whether the taxpayer had provided sufficient proof of the claimed advertising expenses for advertising that took place on the internet and whether the expenses relating to this advertising could be claimed as tax deductible.

Advertising in the Google AdWords system performed during a longer period and arranged for the taxpayer by an agency was subject of the judgment.

The SAC considered it necessary for the taxpayer to provide documentation not only in the form of statements containing records of the number of searches and the number of times the website was opened, but also in a form of screenshots. Although the taxpayer submitted screenshots these were found to be neither distinct from each other nor dated, and thus were insufficient to prove the tax deductibility of relevant advertising expenses.

Another way to prove the receipt of an advertisement could be the administrator account in the Google AdWords system from which the advertisement was to be provided. Since the taxpayer in the case at issue arranged the advertising through an intermediary, they did not have access to the administrator account themselves.

The SAC rejected the taxpayer's cassation complaint and confirmed the opinion of the tax authorities that the taxpayer had failed to prove the receipt of the advertising.

In practise, in case of a tax audit, it is important to have not only the relevant accounting documentation and confirmation of advertising agency but also supporting documentation proving that the advertising has taken place (e.g. screenshots with sufficient identification characteristics).

We were involved in a similar issue in Slovakia concerning the advertisement, which was performed via screens in a shopping centre. The tax authorities rejected the tax deductibility of advertising costs, due to the absence of evidence proving actual broadcast (e.g. a video capturing the broadcast of the advertisement). It must be noted that there was a suspicion that the advertising agency and advertiser were connected and the price charged was relatively high. These factors may have caused rejection of tax deductibility, although the tax authority did not state them as reasons in the decision.