1. Extension of VAT waiver for respirators
Due to the protracted pandemic, the Minister of Finance decided to extend the VAT waiver for filter half masks, respirators and filters meeting the parameters of protection class FFP2 and higher until 3 June 2021. The waiver was originally intended only until 3 April 2021. We have already informed you about the details in our January news. Details can be found in Financial Bulletin No. 8/2021.
2. On 26 March 2021, the General Financial Directorate issued Information on testing for COVID-19 concerning the application of VAT.
In view of the ambiguities in the application of VAT, in particular with respect to mandatory staff testing for COVID-19, the General Financial Directorate has decided to clarify the conditions for the exemption due to a uniform procedure. The GFD summarises in the Information that COVID-19 testing services are tax-exempt transactions without the right to deduct tax if they are regular health services according to Section 58 of the VAT Act and therefore the purpose of the activity with a medical-preventive goal predominates. These services include antigen or PCR testing for the presence of the virus as well as testing for the presence of antibodies after the disease. This procedure will be applied from 1 April 2021.
The above only applies if the tests are performed in the form of health services, i.e. carried out by a health services provider.
3. Amendment to the VAT Act: e-commerce
The Chamber of Deputies proposed an amendment to the VAT Act for further discussion, which should change (among other things) the VAT rules for cross-border e-commerce transactions between businesses and consumers (B2C) from 1 July 2021. The reason for these changes is to overcome barriers to cross-border online sales and to level out competition between EU and third-country suppliers. The amendment provides three optional separate regimes for one administrative place (OSS within the EU, OSS for entities outside the EU, or OSS for imports into the EU), which will allow online retailers, including online platforms, to concentrate all reporting obligations in one EU country. Another advantage is that the same VAT rate will be applied when buying goods online from outside the EU or within the EU as when buying goods in the home country. The new rules ensure that VAT is paid where the goods are consumed.
The European Commission has published a Handbook on the new extended single administration regime, which provides informal guidance on how new EU legislation is to be applied. This guide describes the registration procedure in the individual regimes of one administrative place, deregistration from the regimes, the method of filing a VAT return, the method of payment of the relevant tax and more.
If you want to learn more about the amendment to the VAT Act as regards e-commerce and to find out whether the amendment also applies to your business, subscribe to the BDO webinar which will take place on 13 April 2021 (and 4 June 2021). More information can be found here.
4. Selected case law of the CJEU (03/2021)
C 802/19 Company Z - exempt intra-Community supply of goods and the possibility of reducing the tax base due to a discount granted to the final customer
A supplier making an exempt intra-Community supply of goods to an acquirer in another Member State is not entitled to reduce the tax base of the goods supplied if it provides a certain amount of money to the final customer who acquires the goods from the acquirer.
A Dutch pharmacy sent German customers medicines that were covered by public and private health insurance. After completing a questionnaire and sending it back to the pharmacy, the customer received a certain amount of money from the pharmacy as a "reimbursement of expenses". The pharmacy regarded this reimbursement as a discount on the price of the medicine supplied, and therefore believed that it was entitled to reduce the tax base of the goods supplied. The CJEU stated that the sale of the medicine was the subject of two supplies: the first made by the pharmacy to a health insurance company and the second made by the insurance company to customers. The first supply is an exempt intra-Community transaction, while at the same time being a taxable acquisition of goods in Germany, where the health insurance company is liable to pay tax. The second supply does not fall within the scope of the VAT Directive, as it is not a supply of goods for consideration. As the supply made by the pharmacy is exempt, a reduction in the tax base is not possible.
C 812/19 Danske Bank - group registration and provision of services to its own establishment outside the group
Under the VAT Directive, the principal place of business of a company situated in one Member State and forming part of a group for VAT purposes and a branch of that company established in another Member State must be regarded as distinct taxable persons if that principal place of business provides services to that branch and charges it for the costs associated with them.
The CJEU recalled that a Member State cannot provide that a VAT group of persons established in one Member State should include persons established in another Member State.
C 895/19 A - exercising the right to deduct tax when acquiring goods from another Member State
The right to deduct tax relating to the intra-Community acquisition of goods arises for the acquirer in the same tax period in which it becomes liable to pay tax on the acquisition of goods and cannot be deferred to the current tax period in which the acquirer files an additional tax return when acquiring goods.
The CJEU concluded that, under the VAT Directive, in the context of the reverse charge procedure, the fundamental principle of VAT neutrality requires that a tax be deducted if substantive requirements are met, even if the taxable persons have not complied with certain formalities. National legislation cannot be contrary to the VAT Directive.
C - 48/20 UAB 'P.' - the invoice tax
Directive 2006/112 and the principles of proportionality and neutrality of VAT preclude national legislation from preventing a taxable person acting in good faith from adjusting an invoice incorrectly or unreasonably stating VAT after the tax audit if the recipient of that invoice would have been entitled to a refund had the performance that is the subject of invoicing been properly reported.
1. Brexit - VAT refund from Great Britain for 2020 only until the end of March 2021
VAT payers are reminded that 31 March 2021 is the deadline for applying for a VAT refund, which was paid in the United Kingdom during 2020. The shortening of the usual deadline (30 September) is related to the withdrawal of the United Kingdom from the EU. The electronic tax portal www.daneelektronicky.cz/is used to submit these applications. The Financial Administration recommends that taxpayers do not leave the submission of the application to the last minute and rather deal with obtaining the application for the tax refund as well as the submission of the application itself well in advance. After 31 March 2021, it will still be possible to claim a VAT refund from the United Kingdom for 2020, but directly from the British tax administration. More information on how to apply can be found here. If you have any questions, please contact any of our specialists. We will be happy to help you process your VAT refund request.
2. On 2 March 2021, the Ministry of Finance published a decision in the Financial Bulletin 13/2021 on further waiver of VAT penalties
The waiver concerns:
- fines for late submission of a VAT return for the tax period February 2021;
- fines for late submission of an additional VAT return, which the tax subject is obliged to file by the end of March 2021;
- fines for breach of control report obligations, which the payer was obliged to file for the month of February 2021;
- fines for breach of obligations related to the control report, if the period of time to fulfill the obligation falls at least in part in the period from 1 March 2021 to 21 March 2021;
- interest on arrears incurred for VAT for the tax period February 2021 (unless already waived by an earlier decision of the Ministry of Finance published in the Financial Bulletin No. 38/2020)
However, the above only applies if the obligation to file these tax claims is met and the tax, on which interest on arrears is due, is paid no later than April 15, 2021!
VAT payers can thus file their returns and control reports for the month of February 2021 and pay any tax liability by 15 April 2021 (instead of the normal deadline of 25 March) without the risk of any penalties. Details can be found in Financial Bulletin 13/2021.
3. Clarification of the interpretation of the VAT waiver for tests and vaccines against COVID-19
As we informed you in the December news, the Ministry of Finance waives VAT on the supply of vaccines and in vitro diagnostic medical devices for testing for COVID-19 in the period from 16 December 2020 to 31 December 2022, regarding which the Financial Administration published the Information on December 17, 2020. The Financial Administration has now issued an Addendum in which it adds and clarifies some unclear details about the practical procedures of the application as well as frequently asked questions. The supplier is obliged to issue a tax document without stating the amount of VAT, while it is recommended to state the information "tax waived" on the document. If the supplier states VAT on the tax document (despite the waiver), he is obliged to declare and pay this tax, while the recipient of these goods cannot claim a tax deduction. This procedure according to the Addendum is applied from March 1, 2021.
4. Coordinating Committee of the Chamber of Tax Advisers of the Czech Republic of 27 January 2021 - Application of VAT on the sale of property by the payer
The aim of this KOOV is to clarify when the sale of property is subject to tax, if this property is not a commercial property and is used for economic activity in part or not at all.
Conclusion of KOOV:
The sale of property is not subject to tax if the seller has not acquired the property
as a taxable person, he has chosen from the outset to keep it in his private assets (ie outside the set of commercial assets) and, throughout the period during which he owns those assets, he expresses this wish, which is expressed by the fact that:
- he did not put it in commercial property for VAT purposes and
- he does not record it in the register of commercial property for VAT purposes and
- he did not claim input tax deduction when purchasing it,
although it was partly used for economic activity before the sale.
This is provided that the seller has not taken any active steps in the sale, which are used by ordinary traders. All the circumstances of the case should always be taken into account, including an assessment of whether the actual situation is not obscured by a formal legal situation.
The full minutes of the Coordination Committee meeting can be found here. We recommend that you familiarize yourself with specific examples. Most of the examples can be applied mainly to natural persons or public institutions, but in at least one case it is also possible not to apply output VAT to the sale of assets by business corporations.
5. Selected case law of the CJEU (02/2021)
C 604/19 Gmina Wrocław - conversion of a building right to immovable property into full ownership
The conversion of a building right to immovable property into ownership for a consideration, which is carried out by the city on the basis of national legislation, represents the supply of goods (transfer of ownership of property for the payment of compensation). Given the fact that the transformation allowed the city to gain regular income from the property in question, this performance is an economic activity. As part of this transformation, the city acts as a taxable person.
C 712/19 Novo Banco - tax paid by credit institutions on the balance of client deposits
Spanish credit institutions which have centres or a branch in Andalusia are required to pay a special tax on the deposits deposited with them by their clients. The CJEU has considered whether such a tax is contrary to the VAT Directive, which exempts deposits from tax.
The CJEU has stated that, under the VAT Directive, a Member State may levy taxes on insurance contracts and on bets and games, excise duties, stamp duties and any other taxes, levies or charges which are not in the nature of turnover taxes, provided that they do not result in trade between Member States to create formalities for crossing borders.
The CJEU has ruled that the tax does not have the essential characteristics of VAT, as credit institutions have to pay it because of the holding of deposits made by their clients and not because of the trading operations consisting of deposits. It cannot therefore be considered to apply to transactions having as their object goods or services. Other differences from VAT are set out in the judgment.
1. Application of VAT on the lease of residential real estate
We would like to remind you that with effect from 1 January 2021, the provisions of Section 56a (3) of the VAT Act limiting the possibility of taxing the lease of selected real estate came into force. Although the payer may still decide to apply output tax to the lease of an immovable property to another payer for the performance of his economic activity, this option is limited in cases where the subject of the lease is immovable property intended for permanent residence. This new restriction on the possibility of taxing the lease of immovable property also affects contractual relationships concluded before 1 January 2021. Find our comments on the negative consequences here. Information from the GFR on the application of VAT on the lease of real estate here.
On 31 December 2020, the transitional period for the United Kingdom's withdrawal from the EU ended. The United Kingdom is now formally a third country and EU law no longer applies in the United Kingdom. This means that trade between the United Kingdom and the EU is subject to customs procedures and formalities. The only exception is trade in goods between EU Member States (and thus the Czech Republic) and Northern Ireland, where the rules applicable to EU Member States continue to apply. Please note that the Northern Ireland exception does not apply to trade in services. For more information, see the Information on the Impact of the United Kingdom's withdrawal from the EU in the field of VAT (BREXIT) from 1 January 2021.
3. Reimbursement of an excess deduction without request
The amendment to the Tax Code from 1 January 2021 brings, in addition to the implementing of an advance on tax deductions, also another pleasant novelty for VAT payers concerning a refundable overpayment. If the taxpayer files an additional tax return, which results in a refundable overpayment, he no longer has to apply to the tax administrator for a refund of the overpayment. The overpayment should be refunded automatically. Previously, according to Section 105 of the VAT Act, an overpayment from an excessive deduction was not refunded if it arose on the basis of an additional assessment. However, this is no longer the case. Now, according to the amendment to the Tax Code, the return of a refundable overpayment without a request applies both to the assessment on the basis of a proper return and on the basis of an additional one. The minimum amount of refundable overpayment has increased from the original CZK 100 to CZK 200.
4. On 15 January 2021, the Financial Administration published Information for taxable persons not established in the Czech Republic (VAT registration and other selected tax obligations).
As the changes caused by the amendment to the VAT Act and the Tax Code (Act No. 283/2020 Coll.) take effect on 1 January 2021, the information for taxable persons not established in the Czech Republic has been updated.
5. On 2 February 2021, the Financial Administration published Information on the remission of VAT on the supply of respirators.
In the period from 3 February 2021 to 3 April 2021, the Minister of Finance waives VAT on the supply of the goods defined in the Decision on the waiver of value added tax due to an extraordinary event published in the Financial Bulletin 8/2021. The VAT waiver applies simply to filtered half masks and respirators that meet the parameters of the protection class of at least FFP2, KN95 or N95 or have the same or higher filtration efficiency. It does not apply to ordinary masks. The supplier is obliged to issue a tax document without VAT (it is recommended to state "tax waived"). If the supplier states VAT on the tax document (despite the waiver), he is obliged to declare and pay this tax, while the recipient of these goods cannot claim a tax deduction. We remind you that at the same time, the VAT waiver for the supply of vaccines and in vitro diagnostic medical devices for testing for COVID-19 delivered between 16 December 2020 and 31 December 2022 remains in force (see Financial Bulletin 35/2020).
6. Application of a discount on sales records at the time of suspension of sales records
The sales record is suspended until 31 December 2022 due to the declaration of a state of emergency due to the spread of the COVID-19 virus. Personal income tax payers are allowed to apply a one-off discount on the registration of sales, up to the amount of the positive difference between 15% of the partial tax base for independent activity and the basic discount for the taxpayer. However, a maximum of CZK 5,000. The discount on the registration of sales can be applied only in the tax period in which the taxpayer first registered the sales, which he is obliged to register according to the Act on the Registration of Sales. This means that the EET rebate can only be claimed once in the tax return, for the first year in which you had to introduce it. It cannot be moved to the next tax period. Taxpayers who registered the first revenue from 1 January 2020 to 26 March 2020 are therefore entitled to apply a discount on the registration of sales for the tax period of 2020. More information on applying the discount can be found here.
7. Selected case law of the CJEU (01/2021)
C 288/19 QM - provision of a vehicle free of charge to employees
The CJEU stated that if an employee is allowed to use a vehicle for private purposes, the acquisition of which did not invoke a tax deduction by the employer, in a situation where there is no remuneration that the employee would have to waive in that context, then such performance cannot be considered as providing a service for a fee. Providing a vehicle free of charge could be considered a taxable service only if the employer claimed a tax deduction when acquiring the vehicle.
C 655/19 LN - sale of property within / outside economic activity
The CJEU stated that a transaction whereby a person acquires real estate confiscated in an enforcement procedure initiated for the purpose of recovering his claims and subsequently sells that real estate, this does not in itself constitute an economic activity. It falls within the mere exercise of the right of ownership as well as the proper administration of private property, so that it is not an economic activity and that person cannot be regarded as a taxable person on the basis of that transaction.
C 501/19 UCMR - ADA - fees paid for public access to musical works
The author of a musical work, who provides a non-exclusive license to make his work available to the public for a fee paid by a concert organizer through a collective copyright management organization, provides the service for a fee and is therefore a taxable person. There is a legal relationship on the basis of which the author allows the use of the work to the user, who in return pays a fee for the use of the required work to an organization. There is therefore a direct link between the service provided and the charges involved. The CJEU stated that a collective management organization which collects fees in its own name but on behalf of authors acts as a commission agent in the structure.
Archive: Monthly news in the field of VAT and EET 2020