Summer news in VAT
We bring you a summary of the most interesting things that happened in the summer months, mainly in the field of VAT.
There is no silly season for indirect taxes. You can read all the topics below or choose only the ones that are important for you. For that reason, we take the unusual step of publishing a summary of the article:
- Increase in the limit for compulsory VAT registration from CZK 1 million to CZK 2 million
- EU Commission exempts imports of life-saving goods for Ukrainians from customs duties and VAT
- EU Council extends optional RDPP until the end of 2026
- 600/22.06.22 Assessment of services from VAT payers in the Czech Republic, such as take-back, transport and treatment of waste electrical equipment, not only from the point of view of the application of the VAT rate
- 596/18.05.22 Application of VAT to early termination of finance leaseback
- 597/18.05.22 Application of VAT to early termination of energy supplies or failure to deliver the agreed quantity
Points of interest
- SAO's finding on the receipt lottery
- EU proposes to extend OSS to cover all remaining B2C transactions and selected B2B transactions
- Last year's VAT waiver on electricity and gas was illegal
Selected case law
- SAC 9 Afs 147/2020 - 34: Obligation of the Police of the Czech Republic to provide CCTV footage of a taxpayer's vehicle movements for the purpose of checking excessive VAT deductions on a purchased car
- NSS 1 Afs 80/2021 - 45: Interest on withheld VAT deduction - further developments
- SAC 4 Afs 311/2021 - 33: Remission of interest on late payment in case of active correction of error
- CJEU C-218/21 DSR: Maintenance of lifts cannot be invoiced at a reduced VAT rate even if the lift is in a residential building
1. Increase of the limit for compulsory VAT registration from CZK 1 million to CZK 2 million.
In its first reading, the Chamber of Deputies supported the government's draft amendment to the VAT Act, which includes an increase in the limit for VAT registration to CZK 2 million.
Government proposal: https://www.mfcr.cz/cs/aktualne/tiskove-zpravy/2022/limit-pro-registraci-k-dph-a-vyuzivani-p-47457/
Parliamentary document: Parliamentary printout 254/0 (psp.cz)
2. EU Commission exempts imports of life-saving goods for Ukrainians from customs duties and VAT
On 1 July 2022, the European Commission adopted a decision allowing Member States to temporarily exempt imports of food, blankets, tents, electric generators and other life-saving equipment intended for Ukrainians affected by war from customs duties and VAT in third countries. This measure, requested by Member States, will apply retroactively from 24 February 2022 and will be valid until 31 December 2022.
The exemption from customs duties and VAT applies to imported goods:
- State organisations (public authorities and public bodies including hospitals, government organisations, regional governments, municipalities/cities, etc.); and
- a charitable or philanthropic organisation approved by the competent authorities of the Member States.
More details: Ukraine: Commission waives customs duties and VAT (europa.eu)
3. EU Council extended the optional RDPP until the end of 2026
In practice, this is an extension of the validity of Sections 92f and 92g of the VAT Act until the end of 2026. The original validity was due to expire on 30 June 2022. These are the transactions listed in Annex 6 (e.g. emission allowances, mobile phones, microprocessors, gas, electricity, telecommunication services, game consoles, tablets and laptops, cereals, raw metals), which are described in more detail in Government Regulation No. 361/2014 Coll.
In this context, there is also a technical amendment to Government Regulation No. 361/2014 Coll. in order to maintain the same scope of application of the reverse charge regime under Section 92f of the Value Added Tax Act as before the amendment.
EU Council Directive 2022/890: EUR-Lex - 32022L0890 - EN - EUR-Lex (europa.eu)
Amendment to Government Regulation No. 361/2014 Coll.: Material - ODok Application Portal
1. 600/22.06.22 Assessment of services from VAT payers from the Czech Republic, such as take-back, transport and treatment of waste electrical and electronic equipment, not only from the point of view of the application of the VAT rate
A contribution was concluded on 22 June 2022 in which, also in the opinion of the GFD, nothing has changed in the matter of the VAT rate for the take-back, transport and processing of waste electrical equipment as described in the contribution to the submitter, and the basic VAT rate of 21% is still to be applied.
Minutes of the Coordination Committee of 22 June 2022 - Chamber of Tax Advisors of the Czech Republic (kdpcr.cz)
2. 596/18.05.22 Application of value added tax to early termination of finance leaseback
Following the Coordination Committee 592/23.03.22, the aim of this paper was to clarify the application of value added tax to the early termination of a finance leaseback in the light of the CJEU case law and existing practice in the Czech Republic.
Where the future lessee fails to fulfil its obligations duly and on time (or in other contractually defined cases), the contract may be terminated early. The further procedure will depend on the specific contractual arrangement. In typical cases, the leasing company has the right to satisfy its claims by repossessing the leased item and then usually selling it (or by entering the item into another leasing transaction). In such a case, the leasing company subsequently offsets its obligation under the leased item against its receivable (i.e. the amount due under the lease). The positive difference, if any, between the price received and the outstanding amount receivable before set-off is paid to the lessee. In the event of a shortfall, the lessee will then be required to make an additional payment.
On 18 May 2022, the GFD agreed with the conclusion of the submitter that in a situation where the lessee as well as the leasing company have VAT taxable status, the reverse charge regime under Section 92ea of the VAT Act (supply of goods provided as a guarantee in the performance of the guarantee) applies.
The lessee will issue an invoice to the leasing company for the amount, the taxable amount generally being determined in accordance with Section 36(1) of the VAT Act. In practice, this will generally be the amount for which the collateral has been sold or contributed to another leasing transaction.
Minutes of the Coordination Committee of 18 May 2022 - Chamber of Tax Advisors of the Czech Republic (kdpcr.cz)
3. 597/18.05.22 Application of VAT to early termination of energy supply or non-delivery of the agreed quantity
On 18 May 2022, the GFD concluded that the above cases are taxable services under the normal regime.
Early termination or non-delivery of energy
The taxable supply of goods or services for consideration by a taxable person acting as such is subject to tax under Section 2 of the ITA. The supply of goods (energy) does not take place based on a consensus of the contracting parties. Therefore, in accordance with Section 14(1) of the ITA, compensation for the non-delivery of energy must be qualified as the provision of a service (a service is any performance that is not a supply of goods).
The provider is contractually obliged to supply energy, and the customer is contractually obliged to take energy and pay a predetermined fixed price for it. In the event of early termination of the contract, either the provider shall, for consideration, accept that the customer does not withdraw the energy or the customer shall, for consideration, accept that the provider does not deliver the energy. It is therefore a provision of a service under Section 14(1)(d) of the ITA, according to which the obligation to refrain from a certain act or to tolerate a certain act or situation is also considered a service.
According to the circumstances described above, compression is by its nature rather a termination of energy supply contracts or their modification. It follows from the circumstances described that the termination of the energy supply contracts results in the termination of the energy supply contracts or their modifications with a change in the volume of energy supply, with the provider and the customer agreeing in principle that one of them is entitled to remuneration. In such factual circumstances, it is considered that there is a direct link between the service provided and the consideration, which makes such a trade-off a supply of a service for consideration within the meaning of Section 14(1)(d) of the ITA and thus subject to the ITA. The tax base for such a service must be determined in accordance with Section 36 of the ITA.
Minutes of the Coordination Committee of 18 May 2022 - Chamber of Tax Advisors of the Czech Republic (kdpcr.cz)
Points of interest
1. The SAO's finding on the receipt lottery
The SAO audited the Ministry of Finance's (MoF) management from 2019 to 2020. The audit focused mainly on two funding programmes, the lease of real estate and the expenses related to the receipt lottery. The SAO found a number of shortcomings. For the receipt lottery, the MoF did not evaluate how it helped with tax collection, which was supposed to be its purpose. In addition, it had entered into a contract with the supplier under which it had to pay the full price (nearly CZK 14 million) even when the lottery itself was no longer running and the system was only being maintained.
More details here: https://www.nku.cz/cz/pro-media/tiskove-zpravy/ministerstvo-financi-nevyhodnotilo-dopad-uctenkove-loterie-na-vyber-dani--zbytecne-zaplatilo-14-milionu-kc--chybovalo-v-investicich-i-pronajmech-id12641/
2. EU proposes to extend OSS to cover all remaining B2C transactions and selected B2B transactions
The European Commission (EC) will publish draft amendments to the EU VAT Directive this autumn to extend the one-stop shop (OSS) to all remaining cross-border business-to-consumer (B2C) transactions and certain business-to-business (B2B) transactions.
If the draft is approved, the EC plans to implement the changes by the end of 2023 and will seek to include the following transactions in the OSS regime:
- B2B supply of goods before final sale to the consumer - this can be a situation where a business moves its stock from one EU country to another for storage before sale to the consumer in that country.
- Supply of goods and services (B2C) which are not currently covered, such as the supply of goods with installation and assembly or the carriage of passengers.
- Supply of services (B2B) where VAT is chargeable in the country of the relevant supply.
Read more here: https://www.vatupdate.com/2022/07/15/eu-propose-to-extend-the-oss-system-to-include-b2b-sales-of-goods-and-services/
3. Last year's VAT waiver on electricity and gas was illegal
Following a review procedure, the Minister of Finance revoked the decision to waive VAT on electricity and gas supplies in November and December 2021. The decision was found to be unlawful due to contravention of the Tax Code and EU law. Last year's waiver cost the public budgets around CZK 5.4 billion.
Read more here: https://www.mfcr.cz/cs/aktualne/tiskove-zpravy/2022/lonske-prominuti-dph-z-elektriny-a-plynu-47999/
Selected case law
1. NSS 9 Afs 147/2020 - 34: Obligation of the Police of the Czech Republic to provide footage from CCTV systems on the movement of a taxpayer's vehicle for the purpose of checking excessive VAT deduction on a purchased car
The Tax Administration is entitled to request from the Police of the Czech Republic CCTV footage on the movement of the taxpayer's vehicle if the data is necessary for the Tax Administration and the police is the entity obliged to provide such data to the Tax Administration upon request.
The Tax Administration verified the legitimacy of the VAT deduction claimed by the complainant for the purchase of a car. The complainant provided the Tax Administration with the logbook and the Tax Administration subsequently sent a request to the Police of the Czech Republic to provide information pursuant to Article 57(1) of the Tax Code, namely to provide CCTV footage on the movement of the complainant's vehicle for the period specified in the logbook. The Tax Administration then found that the data on the movement of the vehicle obtained from the police did not correspond with the data in the logbook, and therefore concluded that the complainant had failed to prove that the conditions for entitlement to the deduction, namely the use of the vehicle during economic activity, were met. According to the complainant, the Tax Administration was not entitled to request the cited footage from the police and subsequently use it as evidence to dispute his claims.
The SAC held that under the Police Act, the Police may take CCTV footage of vehicle movements for purposes defined by the Act. In the present case, the police clearly already had the footage in question at the time of the Tax Administration's request, as they had recorded it as part of their statutory activities and only subsequently provided it to the Tax Administration, which used it to prove the complainant's claim for deduction. Thus, the complainant's argument that the police only obtained the footage at the request of the Tax Administration, and thus primarily for the purposes of the tax proceedings, cannot be accepted.
As regards the Tax Administration's power to request the footage in question, the SAC referred to Article 57 of the Tax Code, which regulates the information obligation of persons and public authorities processing data necessary for tax administration.
The SAC then concluded that, in the present case, for the complainant to be entitled to the deduction, it was necessary to verify that he used the car only during his economic activity. Thus, data on the movement of his vehicle were necessary for tax administration within the meaning of Article 57(1) of the Tax Code, where the Tax Administration could not obtain them from its own records and was therefore entitled to request them from the police.
2. SAC 1 Afs 80/2021 - 45: Interest on withheld VAT deduction - further developments
The Supreme Administrative Court (SAC) dismissed the complaint of the Tax Administration regarding interest on the withheld excessive deduction, where the subject of the dispute was the amount of interest after 1 July 2017. The SAC concluded that the transitional provision of Act No. 170/2017 Coll. amending Section 254a of the Tax Code is applicable to the period after 1 July 2017. Therefore, even though it refers to the legislation which was found to be in conflict with EU law (i.e. 1% interest), it is necessary to apply in the given case not the new interest rate, i.e. 2%, but the rate resulting from the judgment of the "cordarnia" (i.e. the judgment of the SAC in Case No. 7 Aps 3/2013), i.e. 14%.
The merits of the case were that the Tax Administration in the present case awarded interest at the repo rate plus 14 percentage points until 30 June 2017. From 1 July 2017, it awarded interest only at the repo rate plus 2 percentage points.
Based on the SAC judgment, it is not possible for the Tax Administration to apply the new legislation during the interest period. Thus, according to the SAC, the withheld deduction must bear interest at the original interest rate for the entire period. The taxpayer is thus entitled to interest calculated on the repo rate plus 14 percentage points for the entire period of interest, i.e. also for the period after 30 June 2017.
3. SAC 4 Afs 311/2021 - 33: Remission of interest on late payment in case of active correction of error
In the context of the test of frequency of tax administration breaches, the formal division of the same material error into different administrative proceedings cannot be taken into account, but the source cause of the error must be assessed.
The complainant applied for remission of default interest and the Tax Administration, in view of the frequency of the complainant's previous breaches of tax administration (she had been fined at least twice in the last three years for late tax reporting), did not grant the application and did not remit any default interest. Following the rejection of the application by the Tax Administration, the complainant brought an action before the Regional Court, which dismissed it. The Regional Court referred to the judgment RS 1 Afs 236/2019 - 83, which shows that the Tax Administration was obliged to take into account, to the complainant's detriment, the fact that she had been fined twice for late tax claims.
According to the Supreme Administrative Court, the conclusion of the Regional Court must be regarded as contradictory to the purpose of the institution of remission of tax accessories. The SAC recalled that the primary cause of all the complainant's breaches of the tax legislation was her misinterpretation of the VAT Act, which led her to pay VAT in Germany between 2015 and 2017 on transactions in the Czech Republic on which she should have paid VAT in the Czech Republic. The complainant realised her error at the end of 2017 and therefore initiated the procedure for retrospective VAT registration and subsequently submitted the correct and additional VAT claims and paid the tax due.
In the present case, therefore, the complainant committed only one error, which, however, resulted not only in the assessment of the previously unpaid tax (and default interest), but also in the need to submit additional tax returns for certain previous tax years. In those circumstances, it is not possible to regard the fine imposed for that partial misconduct as an aggravating circumstance consisting in an increased frequency of breaches of tax administration obligations by the taxpayer. In the present case, there was only one act of misconduct.
The fact that the sub-aspects of that misconduct were sanctioned separately does not make them separate (unrelated) misconduct, since their root cause is still the same. Therefore, the conclusion of the Regional Court cannot be interpreted as meaning that taxpayers should be treated differently depending on whether their misconduct was formally sanctioned in a single proceeding or whether some of its sub-aspects were sanctioned separately.
The Supreme Administrative Court thus concluded that the institution of remission of accessories is designed in such a way that it gives a certain benefit to entities that cooperate with the Tax Administration and act honestly, fairly and with sincere efforts to correct their misconduct in relation to the state administration. However, if the Regional Court's interpretation were to apply, the complainant would be placed on a par with entities which systematically fail to fulfil their obligations and wait for the Tax Administration's eventual findings, simply because its materially single misconduct has been formally sanctioned by several separate decisions. Such an interpretation and application of the legal rules would create an unacceptable inequality between the complainant and tax entities which committed similarly serious (or even more serious) misconduct, but which was dealt with and subsequently sanctioned in a single tax procedure.
4. CJEU C-218/21 DSR: Maintenance of lifts cannot be invoiced at a reduced VAT rate even if the lift is in a residential building
The CJEU explains, somewhat surprisingly but quite logically, why the maintenance of lifts cannot be subject to a reduced VAT rate. The reduced rate is designed as an exception to the general rule and must therefore be interpreted strictly and narrowly.
The aim of the Directive was to apply the reduced VAT rate only to occasional supplies. The repair or renovation of lifts meets this definition, but maintenance does not. For this reason, the standard rate of VAT should be applied to periodic maintenance of lifts, regardless of their location.
The Court also addressed another condition for the application of the reduced rate and clarified what is meant by the terms private dwellings and dwellinghouses. The Czech definition of these terms is not in conflict.
However, the judgment also states that if there are premises in the property which are used for other than residential purposes, the VAT rate should be apportioned, i.e. part of the supply should be subject to the standard rate of VAT and only the part of the supply which can be attributed to residential purposes should be subject to the reduced rate of VAT.
Judgment in itself: Point 2 of Annex IV to Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the term "renovation and repair of private dwellings and dwellinghouses" within the meaning of that provision includes services for the repair and renovation of lifts in residential buildings, with the exception of maintenance services for such lifts.
1. VAT registration limit rises to CZK 2 million
The Ministry of Finance's bill seeking to increase the annual turnover limit for compulsory VAT registration to CZK 2 million with effect from 1 January 2023 is heading to the external comment procedure. The current limit of CZK 1 million corresponds to the amount of EUR 35,000 that the Czech Republic received when it joined the European Union in 2004. The EU will allow Member States to increase the limit to EUR 85,000 from 2025. However, the Czech Republic has requested the possibility to increase the VAT registration limit to CZK 2 million. The Czech Republic has already set a limit of CZK 2 million for VAT payment earlier. The EU is expected to approve this request. The amended law will also introduce the possibility to opt out of paying VAT with an annual turnover of up to CZK 2 million. More information can be found on the MoF website here.
2. Selected case law of the CJEU (04/2022)
C ‑ 333/20 Berlin Chemie – establishment VAT arises in the case of marketing and other services provided by a subsidiary
The German company sold the goods through its subsidiary in Romania. The German company and the Romanian company entered into a contract for the provision of marketing, regulatory, advertising and representation services in which the Romanian company undertook to actively promote the German company's products in Romania, in particular through marketing activities. For the services provided by the Romanian company, the German company undertook to pay a monthly fee calculated based on all the expenses actually incurred by the Romanian company, increased by 7.5% per calendar year. The Romanian company invoiced the services in question to the German company net of VAT, since it considered that the place of supply of those services was in Germany. However, the Romanian tax authorities considered that the German company had a permanent establishment in Romania and charged VAT on the supplies in question.
The Court notes that a VAT establishment is characterised by a sufficient level of permanence and an appropriate structure in terms of human and technical resources, which enables it to receive and use the services provided for its own use. In the present case, however, the recipient of the marketing, regulatory, advertising and representation services provided by the Romanian company appears to be a German company which uses its human and technical resources located in Germany to conclude and implement sales contracts with distributors of its pharmaceutical products in Romania. The judgment concludes that a company with its registered office in one Member State does not have a permanent establishment in another Member State on the basis that it has a subsidiary there that provides it with human and technical resources under contracts under which it exclusively provides it with marketing, regulatory, advertising and representation services which may have a direct impact on its sales volume.
C ‑ 612/20 Happy Education – provision of supplementary education by a private person
The Romanian company Happy Education provided additional educational services, including tutoring of schoolchildren, foreign language and art courses, sports activities, picking up children from school and providing meals after school activities. The preliminary question was whether these constituted services closely related to education which could benefit from the tax exemption. The CJEU recalled that the exemption provided for in that provision is conditional on the services being provided by public bodies or other bodies whose objectives are similar to those of a public educational body. Recognition of such similar objectives is, in principle, a matter for the national law of each Member State. Under Romanian law, such recognition is given to private bodies which offer educational activities by arranging cooperation with an educational establishment within the framework of the national "School after school" programme. However, Happy Education has not arranged such cooperation and hence does not have the recognition or approval required for that purpose under Romanian law. It therefore does not meet the conditions for tax exemption.
C ‑ 218/21 DSR – the possibility of applying a reduced VAT rate for elevator repair and maintenance services
The issue at stake was whether a reduced VAT rate could be applied to repair and maintenance services for lifts which are an integral part of residential buildings (see Article 106 and Annex 4(2) of the VAT Directive). According to the above provision, the reduced rate can be applied if the work is renovation and repair work and, at the same time, is related to private dwellings or dwelling houses. The CJEU stated that the term "renovation and repair of private dwellings and dwelling houses" covers services for the repair and renovation of lifts in residential buildings, except for maintenance services for such lifts.
1. Waiver of interest on late payment and waiver of interest on late payment of VAT for businesses mainly engaged in transport
In connection with the extraordinary events in Ukraine, the Ministry of Finance issued a Decision on the remission of interests and advance payments of value added tax, published on 24 March 2022 in Financial Bulletin No. 6/2022.
This Decision concerns value added tax payers (or identified persons) for whom the predominant part of their income (more than 50%) for the tax period in question is derived from the transport business (any kind). In the case of natural persons, income is considered in accordance with Sections 6, 7 and 9 of the Income Tax Act.
Interest on late payment (Section 252 of the Tax Code) and interest on arrears (Section 253 of the Tax Code) accruing on the late payment of tax by a taxpayer (identified person) meeting the above conditions is waived for the monthly tax periods of February 2022 to August 2022, or for the first quarter of 2022 or the second quarter of 2022 in the case of a quarterly tax period.
Taxpayers (or identified persons) are automatically exempted from late payment of the tax for the tax periods in question based on the Decision if the taxpayer notifies the locally competent tax office that the majority of its income is derived from the transport sector within the deadline for filing the tax return for the tax period in question and the full amount of the tax for the tax period in question is paid by 31 October 2022 at the latest.
Please note, however, that value added tax returns must always be submitted within the statutory deadlines.
For more information on the waiver of interest on late payment and the waiver of interest on VAT arrears for businesses predominantly engaged in transport, click here: https://www.financnisprava.cz/cs/dane/dane/dan-z-pridane-hodnoty/informace-stanoviska-a-sdeleni/prominuti-uroku-z-prodleni-a-prominuti
2. Coordination Committee on the application of value added tax to selected financial leasing transactions
Paper No. 592/23.03.22 dealt with the clarification and unification of the application of value added tax in selected basic transactions of financial leasing and so-called reverse financial leasing in light of the CJEU case law and existing practice in the Czech Republic.
In the case of a so-called standard finance lease transaction, the leasing company concludes a purchase contract with the supplier of the leased asset (the leased item), based on which the leasing company acquires legal ownership of the leased item. In addition to the purchase agreement with the supplier, the leasing company enters into a finance lease agreement for the leased asset with a lessee that is a different party from the supplier.
In the case of a standard finance lease transaction, the General Financial Directorate (GFD) agrees with the proposed conclusion that, from a VAT perspective, there is a supply of goods from the supplier to the leasing company and subsequently a supply of goods under a finance lease agreement from the leasing company to the lessee. VAT will be applied to these transactions in accordance with the status of the supplier and the leasing company (VAT payer or non-VAT payer) and the method of supply (local supply or, where appropriate, intra-community supply or import) of the leased goods.
By contrast, in the case of a so-called leaseback (finance lease), the supplier of the leased asset is the same person as the lessee, i.e. the leasing company acquires the asset, which is the subject of the finance lease contract, from the future lessee into its ownership and leases it back to the lessee at the same time in the form of a finance lease.
In the case of a leaseback (financial) lease, the GFD also agrees with the submitter's proposed conclusions that in this case there is no supply of goods for VAT purposes from the (future) lessee to the leasing company and back, but only one transaction in the form of the provision of a service by the leasing company to the lessee, i.e. there are not two related supplies of goods, but one supply of a service.
A technical leaseback is very similar to the above-mentioned leaseback, but in the case of its technical variant, the leased item is not used by the (future) lessee. Instead, before it is put into use, the (future) lessee transfers the leased item to the leasing company, which transfers it back to the lessee at the same time via a finance lease agreement.
Since the leasing company does not bear any risks associated with the possession of the leased item and does not acquire sufficient rights to dispose of the leased item as an owner, from a VAT point of view this variant can be treated in the same way as the reverse (finance) lease described above, i.e. as the supply of a service, but not a double consecutive supply of goods.
The GFD further adds that the service in question in the case of a financial leaseback and a technical leaseback is a service of a financial nature meeting the conditions of Section 54(1)(c) of the VAT Act and therefore an exempt supply without the right to deduct tax.
The full article can be found in the minutes of the meeting of the Coordination Committee with the Chamber of Tax Advisors of the Czech Republic of 23 March 2022.
We add that there is another KOOV under negotiation, which deals with the situation when the lessee ceases to pay its obligations to the leasing company and, for this reason, the ownership of the subject of the lease passes to the leasing company in accordance with the agreement. According to the submitter this is essentially a security transfer and the reverse charge regime should apply. We will keep you informed about the GFD's position on this conclusion.
3. Coordinating Committee regarding the tax and accounting implications of lump-sum reimbursement for employers who garnish an employee's wages
Paper No 590/21.01.22 among other things clarified the method of applying VAT to lump-sum reimbursements of costs incurred by the employer for those calendar months in which it makes deductions from the employee's (obligor's) wages.
The GFD agreed with the proposed conclusion that the reimbursement of expenses provided under the amended provision of Section 270 of the Code of Civil Procedure does not constitute remuneration within the meaning of the VAT Act. Thus, the employer's activity of deducting wages under the Code of Civil Procedure is not subject to VAT. However, since this activity is part of its economic activity, its performance does not affect the employer's entitlement to input VAT deduction (the deduction will be applied according to the general rules with regard to the nature of its economic activity).
The full post can be found in the minutes of the meeting of the Coordination Committee with the Chamber of Tax Advisors of the Czech Republic of 23 March 2022.
4. Coordination Committee on the application of VAT on services provided by municipalities to authorised packaging companies and operators of collective schemes
Paper No. 591/23.03.22 dealt with issue of the status of the municipality as a non-taxable and taxable person and the impact of these statuses on the VAT regime for services provided by municipalities in the context of waste management.
The GFD agreed with the proposed conclusion that the provision of services by a municipality to an authorised packaging company in connection with the Packaging Act and to manufacturers under the End-of-Life Products Act is not the exercise of public authority and, therefore, when performing such activities municipalities are considered to be taxable persons, not non-taxable persons acting in a public capacity.
The GFD adds, however, that municipalities do not only act in accordance with the Packaging Act or the End-of-Life Products Act when sorting municipal waste, under which they are taxable persons and therefore fully entitled to the deduction, but also in accordance with the Waste Act, under which they are considered to be exercising public administration when sorting municipal waste. This means that if a municipality provides collection of the contents of waste containers, when claiming a tax deduction for taxable supplies received in connection with the collection, it is necessary to proceed in accordance with Section 75 of the VAT Act and to claim the deduction in a proportional amount.
The full post can be found in the minutes of the meeting of the Coordination Committee with the Chamber of Tax Advisors of the Czech Republic of 23 March 2022.
1. Tax relief in connection with the situation in Ukraine (VAT)
In the context of the current wave of solidarity and donations in support of Ukraine, the Financial Administration has issued a summary of VAT relief options.
However, there are no concessions yet. The tax administrator only summarises the current related VAT legislation, which is mostly not very favourable for taxpayers.
From the point of view of the Value Added Tax Act, this is the situation:
- Provision of financial gifts
The provision of financial gifts is not subject to VAT.
- Provision of material gifts
If the taxpayer has not claimed a deduction for the donated goods, they do not have to deal with VAT.
In cases where the taxpayer has claimed a VAT deduction on donated goods/property, there is a real risk of VAT being charged.
- Supply of goods by a domestic taxpayer to a humanitarian or charitable organisation which sends them to a third country (Ukraine) as part of its humanitarian, charitable or educational aid)
The taxpayer is only exempt when donating goods/property to a humanitarian or charitable organisation that takes the donation to Ukraine, in accordance with Section 68(15) of the VAT Act.
Read more here: https://www.financnisprava.cz/cs/financni-sprava/novinky/novinky-2022/danove-ulevy-v-oblasti-dane-z-pridane
2. Extension of the reverse charge regime
The European Commission has recently put forward a proposal to extend the possibility of applying the reverse charge scheme to selected goods and services (Article 199a of the VAT Directive) and the so-called quick reaction mechanism (Article 199b). They are implemented in Czech law in Section 92f, Section 92g and Annex 6 of the VAT Act. In particular, the delivery/provision of:
- emission allowances;
- mobile phones;
- gas and electricity to the trader;
- telecommunications services;
- game consoles, tablets and laptops;
- raw or semi-processed metals.
These articles were due to expire on 30 June 2022, but the Commission is proposing to extend them until 31 December 2025, as they have proved effective in the fight against VAT fraud. The proposal is currently undergoing a consultation procedure. It will enter into force on the 20th day following its publication in the Official Journal of the European Union.
3. Selected case law of the CJEU (02/2022)
C ‑ 605/20 Suzlon Wind Energy – recharging of expenses incurred by the customer in connection with warranty repairs
The issue in the present case was whether the issue of a bill of sale, whereby the supplier is to reimburse the purchaser for the cost of repairing or replacing goods previously acquired during the warranty period, can be classified as a mere recharging of expenses and as such exempt from VAT, or whether it is a supply of services for consideration on which tax must be paid.
The company argued that the mere recharging to the supplier of the amount of expenditure incurred in connection with the repair or replacement of the goods during the warranty period was not for the purpose of generating revenue. The disputed receipts represent a reimbursement of costs arising from the supplier's obligation to provide a guarantee for the product sold. According to the company, they were therefore not the provision of a service for consideration but mere cash flows which, since they did not create any added value, were not subject to VAT.
The fact that the company recharged the cost of replacing or repairing the defective products without a margin or surcharge is not relevant to the qualification of the supply as a "supply for consideration". That concept presupposes only that there is a direct link between the supply of goods or services and the consideration actually received by the taxable person. It follows from the above that the supplies in question meet the criteria of supplies of services for consideration.
The CJEU found that the transactions in question led to remuneration obtained by the supplier and constituted the actual consideration for the services in question in the form of the notepaper, and that they constituted a supply of services for consideration, irrespective of the possible absence of profit for the taxable person and the existence of a guarantee relating to the transacted goods.
C ‑ 9/20 Kollaustraße – the moment of entitlement to deduction where the tax liability arises on receipt of payment
The lessee of the immovable property and its lessor accounted for VAT at the time the payment was received (see Article 66 of the VAT Directive), i.e. irrespective of the lease period. The issue in dispute was whether the lessee became entitled to deduct the tax when they paid the rent and the lessor became liable to declare the tax at the same time, or in the tax period to which the lease related. Under the national rules, the recipient of the supply became entitled to deduct tax at the time of the supply of the service, irrespective of the time when the supplier's tax liability.
The CJEU held that if, under Article 66, the tax liability arises at the latest upon receipt of the payment, the right to deduct also arises at the time of receipt of the payment. The right to deduct therefore accrued to the lessee at the time of receipt of the payment by the lessor.
C ‑ 515/20 B AG - reduced rate for the supply of firewood
The CJEU stated that, in the absence of a definition of "firewood" in the VAT Directive, the ordinary meaning of the term in common parlance must be taken into account, i.e. the term "firewood" refers to any wood which, by virtue of its objective characteristics, is intended solely for burning.
Article 122 of the VAT Directive authorises Member States to apply a reduced rate to supplies of firewood during the transitional period. This also includes the possibility to apply a reduced rate only to certain categories of fuelwood supplies by reference to the nomenclature codes, provided that the principle of tax neutrality is respected. This principle prevents similar goods or services which compete with each other from being treated differently in terms of VAT. In other words, it is an assessment of whether the goods or services in question are substitutable from the point of view of the average consumer. In such a case, the application of different VAT rates could affect the consumer's choice, which would infringe the principle of fiscal neutrality.
Accordingly, national legislation may exclude the supply of wood chips at issue from the application of the reduced rate of VAT, although it applies the reduced rate to supplies of other forms of fuelwood, provided that the average consumer does not find the wood chips substitutable with those other forms of fuelwood, but this must be verified by the referring court.
1. Answers to frequently asked questions on VAT for pricing and values
The Ministry of Finance issued an interesting document at the end of January: Selected questions and answers concerning value added tax (VAT) on prices and values determined under the Valuation of Property Act.
For a long time, the professional public has been calling for clarification about the valuation of supplies from the perspective of VAT.
The result emphasises that it is up to the valuer to determine the normal or market price. However, it is crucial that amounts net of tax are not compared with, or attributed to, amounts with tax.
The Supreme Administrative Court has already confirmed that the established ("table") price is always the price excluding VAT.
In the document you will find answers to the following questions.
- Does the Valuation of Property Act regulate the determination of the value (price) of property in terms of the requirements arising from value added tax?
- Is it necessary to take VAT into account when valuing assets?
- Is value added tax taken into account when determining the value (price) according to the Valuation of Property Act?
- Is the price usual with or without VAT?
- Is the market value with or without VAT?
- Is the price determined according to the valuation decree the price without VAT or the price with VAT?
- Are all basic prices in the valuation decree prices without VAT?
- Does the price of the easement include VAT or exclude VAT?
- Does the lump sum of CZK 10,000 used for easements contain VAT or does it not contain VAT?
2. Changes in the application of the rate for the supply of medical devices
With effect from 1 January 2022, changes have been made to the medical devices (in Annex 3 of the VAT Act) to which the 15% VAT rate applies. The reduced rate will now apply only to certain medical devices falling under customs nomenclature codes 01-96 used for the exclusive personal use of the sick or disabled for the treatment of illness or to alleviate the consequences.
The changes also affect repairs (and now modifications) of medical devices. If the supply of a medical product is now subject to the standard rate of VAT, the repair or modification of the related product will also be subject to that standard rate.
Accessories for medical devices are also newly included in Annex 3 (15% VAT rate).
If you sell or buy medical devices, we recommend that you check whether the VAT rate has changed. We will be happy to help you with your assessment or with any questions you may have.
3. Coordination Committee on the application of VAT on the establishment of construction rights
Paper No. 589/24.11.21 clarified the method of applying VAT to construction payments paid by the builder to the owner of the property as consideration for the establishment of the building right.
The General Financial Directorate (GFD) agreed with the proposed conclusion that each construction payment can be treated as a payment for a separate sub-performance if the builder and the owner of the property (land) so agree in the contract, and therefore, the VAT is payable on a continuous basis on the date specified in the contract or at the end of the billing period. This means that the construction payment does not have to be taxed all at once at the beginning of the grant of the development right but can be taxed progressively as it is paid.
The GFD has further confirmed that in the case of interim taxation of construction payments, the method of taxation will be determined as to the status of the land or building at the time the building right is registered in the Land Register, i.e. there will be no subsequent change in the taxation regime after the building is constructed or any change to the already constructed building.
The full post can be found in the minutes of the meeting of the Coordination Committee with the Chamber of Tax Advisors of the Czech Republic of 24 November 2021.
4. Selected case law of the CJEU (01/2022)
C ‑ 156/20 Zipvit - entitlement to deduction for a supply incorrectly considered exempt
Where a contract concluded between two parties provides that, where tax is payable, the recipient of the services must bear the tax at its own expense, and where no steps have been taken in time to recover the VAT, the recipient is not entitled to deduct the tax where the recipient and the supplier have mistakenly assumed, based on an incorrect interpretation of EU law by the national tax authorities, that the supplies in question are exempt from VAT and the invoices issued do not show it as a result.
C ‑ 513/20 Termas Sulfurosas de Alcafache SA - exemption of the supply of
The production of a personal card containing the patient's medical records, which entitles the patient to purchase medical treatment as part of a "traditional spa treatment" in a spa establishment, may fall within the scope of the VAT exemption as an activity closely related to medical care, provided the card contains information on the patient's state of health, the prescribed and planned medical treatment, as well as the manner in which it is provided, and the consultation of this information is necessary for the provision of this care and the achievement of the intended treatment objectives.
C-90/20 Apcoa Parking Danmark A/S – charge for non-compliance with parking conditions
The monitoring fees levied by operators of private car parks if drivers do not comply with the general conditions for the use of these car parks are regarded as consideration for a paid parking service, which as such is subject to VAT. According to the CJEU, the higher operating costs of the operator for monitoring compliance with the parking conditions are directly related to the parking service and can therefore be considered as an integral part of the total amount, since the fee is only paid when the parking service is provided (the vehicle is parked).
1. End of VAT exemption for protective equipment
The Ministry of Finance has not extended the VAT waiver for filtering respirators and respirators of protection class FFP2 and higher. More information can be found in the report published by the Ministry of Finance.
2. End of VAT waiver on electricity or gas supplies
In December 2021, the General Financial Directorate (GFD) specified the procedure for VAT remission on electricity and gas supplies in the GFD Information on VAT REMISSION on electricity or gas supplies. VAT on these supplies will be remitted if the date of the tax liability falls between 1 November and 31 December 2021. Therefore, advance payments received in January 2022 will already be taxed in the standard way. As will any underpayment of energy bills, which will be settled by meter reading in January 2022.
Supplies of electricity or gas which have fulfilled the conditions for VAT exemption are shown in the VAT return on line 26. The provider will show them as standard on line 25.
3. VAT news for travel agencies from 2022
From 1 January 2022, significant changes have been made to how VAT is applied to travel services. Travel service providers can no longer determine the taxable amount for the entire tax period in aggregate but must do so individually for each customer.
Advances received are now taxed (if the tax rate and place of supply of the travel service are known). The so-called surcharge for the received advance is determined as the product of the amount of the received advance and the coefficient for calculating the surcharge. The amount of the coefficient can be calculated in two ways: either based on the costs actually paid or based on the costs expected to be incurred in connection with the travel service.
Furthermore, the exemption for air passenger transport to third countries has been narrowed. It is no longer entirely exempt from VAT, but part of the transport within the EU is subject to a surcharge.
More information can be found in the Information on the application of VAT to tourism services from 1 January 2022, issued by the GFD on 1 December 2021.
4. New guide to Intrastat reporting
Following the changes to Intrastat reporting effective from 1 January 2022 (which we informed you about in our September newsletter), the Czech Statistical Office has published an informative guide summarising all the rules concerning reporting. The handbook also contains a number of practical examples.
As a brief reminder, as of 1 January 2022, the data to be reported in connection with the export of goods to another EU Member State (note: previously the direction of dispatch) has been extended. Reporting units are now required to report data on the country of origin of the exported goods and the tax identification number (or equivalent) of the partner entity.
The nature of transaction codes and the limit for small consignments have been significantly changed and increased to EUR 400.
A new feature is the introduction of a simplified reporting option, which allows for one report per year without detailed data if certain conditions are met.
5. Selected case law of the CJEU (12/2021)
C ‑ 154/20 Kemwater ProChemie – denial of deduction where the actual supplier has not been identified
The tax administration did not recognise the recipient's right to deduct VAT for advertising services at golf tournaments, as it concluded that the actual supplier of the goods or services in question had not been identified and the actual scope and subject matter of the services had not been proven. The recipient of a supply claiming a VAT deduction must prove that the supplier was in a taxable position, except where this is apparent from the facts of the supply or from information available to the tax administration.
Now the extended chamber of the Supreme Administrative Court of the Czech Republic will have to deal with this judgment. We believe that its interpretation will provide clear guidance on how to ensure that taxpayers do not get into unnecessary disputes with the tax administration.
1. Coalition agreement and tax programme
The chairmen of the coalition parties SPOLU and Pirates and Mayors signed a coalition agreement on Monday, 8 December 2021. Among other things, the agreement includes a coalition programme that describes how the parties in the future governing coalition intend to govern the country.
Below you can find the points of the coalition programme concerning VAT:
We will increase the limit for compulsory VAT registration to CZK 2 million.
We will motivate companies to operate in an environmentally friendly way, and we will examine the possibility of reducing VAT on all environmentally friendly products.
We will reduce VAT on the construction or reconstruction of flats and houses.
We will reduce the bureaucratic burden in the administration of taxes and fees, abolish the EET and parametrically adjust the control report.
2. Increase of the limit for VAT liability in the future
The Ministry of Finance has submitted a request to the European Union to increase the limit for paying VAT from the current CZK 1 million to CZK 2 million. The Czech Republic wants to obtain an exemption to increase the current exemption limit for a limited period until 31 December 2024. From that date, the approved amendment to the VAT Directive will come into force, which will allow Member States to decide at their discretion to increase the turnover limit for becoming taxable up to EUR 85,000. This measure will also make it possible to increase the number of traders who will be able to benefit from the flat-rate tax. The MoF estimates that by increasing the limit to EUR 2 million, the taxpayer will be able to increase the number of taxable persons. The limit of CZK 2.5 million will result in a decrease of about 105,000 taxpayers. For details, please see the press release issued by the Ministry of Finance on 2 November 2021.
3. Selected case law of the CJEU (11/2021)
C – 334/20 Amper Metal – entitlement to a tax deduction if the price of the supply is higher than the normal price
A company claimed a VAT deduction on advertising services (logo on racing cars during a motor race). The tax authority refused to grant the company the deduction on the grounds that the cost of the advertising services was disproportionately high and that the advertising services purchased could not have had any effect on the company's sales.
The CJEU did not uphold the tax administrator's decision. The CJEU recalled that the taxable amount is everything that constitutes consideration. The taxable amount should correspond to the normal price only if the transaction is between related parties. It follows, therefore, that a higher-than-normal price for advertising services cannot lead to a disallowance of the deduction for those services.
The fact that the price of the supply does not correspond to the normal price of a comparable supply or that the supply received did not in fact lead to an increase in the recipient's sales is not relevant for the purposes of the deduction. To qualify for the deduction, it is essential that the expenditure is of a professional nature and directly and immediately related to the taxable person's overall (taxable) economic activity. The CJEU left it to the national court to assess whether the advertising services were intended to promote the company's products and services or were by their nature related to the company's economic activity.
C 398/20 ELVOSPOL – correction of VAT on bad debts
The CJEU has ruled that part of the Czech VAT Act is contrary to EU law. The court's ruling came in a dispute between the Financial Directorate of Appeal and Elvospol, represented by BDO lawyers. The defective part of the law concerned the payment of VAT on claims from companies that had gone insolvent. The VAT Act, which makes it a condition for the VAT correction that the receivable did not arise in the six months prior to the bankruptcy decision, is contrary to the principle of VAT neutrality. According to the VAT Directive, a Member State must allow a VAT correction if the supplier can prove that its receivable has become definitively unenforceable.
The Czech VAT Act has been amended and now no longer contains the six-month condition.
You can read more about this landmark decision here.
C 281/20 Ferimet – fictitious supplier and entitlement to deduction
Ferimet purchased recyclable scrap subject to the reverse charge. It issued an invoice for the purchase itself and declared VAT, which it also claimed as a deduction. The tax authorities identified that the supplier named on the invoice was fictitious and the actual supplier was unknown and therefore refused to grant the company a VAT deduction.
The CJEU considered the question of whether a company could be refused a deduction where it had knowingly indicated a fictitious supplier on an invoice, even though there was no doubt that the supply of goods had actually taken place and the tax had been self-assessed by the company.
Even if, under the reverse charge scheme, there is in principle no levy of tax, i.e. no loss of tax revenue, the customer can be denied the right to deduct. The CJEU held that, where a supply has been made, it is necessary to determine the identity of the actual supplier and to assess its position in the transaction (i.e. whether it acted as a taxable person). Similarly, the customer may be denied the right to deduct VAT if it is sufficiently proven that it has committed VAT evasion or that it knew or should have known that the transaction on which it claims a deduction was part of a tax evasion.
1. Amendment to the VAT Act (e-commerce): OSS
As of 1 October 2021, an amendment to the VAT Act came into force, which focuses mainly on new rules in e-commerce and the introduction of the One Stop Shop system. These changes mainly affect sellers making cross-border sales of goods to end consumers (e.g. e-shops), digital platforms or importers of goods from a third country. As of 1 October 2021, it is no longer possible to follow the direct effect of the VAT Directive, as the new rules have already been transposed into the VAT Act. Taxable entities will therefore follow the VAT Act and Council Regulation (EU) No 282/2011 of 1 October 2021. The amendment to the VAT Act contains these changes in particular:
- taxation of the sending of goods (now known as distance selling) between EU countries
- abolition of the limits of EUR 35,000 or EUR 100,000 for sending goods from the Czech Republic to the EU
- abolition of the limit of CZK 1,140,000 for sending goods from the EU to the Czech Republic
- introduction of a limit of EUR 10,000
- abolition of the tax exemption for imports of goods with an intrinsic value not exceeding EUR 22 from a third country
- delivery of goods facilitated by an electronic interface operator (digital platform)
- extension of the special scheme of the One Stop Shop.
More detailed information on the changes to the VAT Act can be found in the article New VAT rules from 1 July 2021 and on the website for the special One Stop Shop scheme.
If you have any questions about the new rules, please do not hesitate to contact us. We will be happy to advise you and handle the registration for you.
2. Reporting Intrastat – important changes from January 2022
From 1 January 2022 there will be changes to Intrastat reporting. The Czech Statistical Office has prepared an overview of the most important innovations that reporting units will have to face from the new year. In connection with them, the terminology used will change. Instead of the term "dispatch", the term "export of goods to another EU Member State" will be used and instead of "receipt", the term "import of goods from another EU Member State" will be used.
The scope of data to be reported in connection with the export of goods to another EU Member State has also been expanded. In addition to the existing data on exported goods, reporting units will now also be required to report data on the country of origin of the exported goods and the tax identification number or similar number used for VAT purposes assigned to the partner entity in the EU Member State to which the goods will be exported.
The transaction nature codes will also undergo a significant change. Detailed information can be found here New transaction nature codes. To help you navigate the new transaction nature codes, you can also use Transaction nature code converter.
Other changes concern, for example, the limit for small consignments, which is increased from the current EUR 200 to EUR 400, the rounding of additional units of measurement, which will now be done in the same way as for weight, or the reporting of the so-called 100% credit note.
The most significant change is the introduction of the possibility of simplified reporting if certain conditions are met. This will allow one report to be sent per year without providing detailed data if the reporting unit imports or exports goods worth between CZK 12 million and CZK 20 million and at the same time the specific commodities listed in the CSO Communication are not involved. For more information on the simplified declaration, please see here.
3. Selected case law of the Court of Justice of the European Union (9/2021)
C ‑ 855/19 G. – purchase of fuel from another Member State
The CJEU held that the VAT Directive precludes a provision of national law which imposes an obligation to pay VAT on intra-Community purchases of fuel before it becomes chargeable within the meaning of Article 69 of the Directive.
C ‑ 294/20 Auto Service - tax refund; failure to submit required documents
In the present case, the German company requested a refund of Spanish VAT from the Spanish tax authorities. The tax authorities asked the company to provide original invoices and other information relating to the transaction. However, the company failed to supply them. The tax authority therefore rejected the VAT refund request. The company asked for a review of the rejection and the tax authority invited the company to complete the information, but as the company did not respond to the invitation, the tax authority upheld the rejection under review.
The CJEU held that the directive does not preclude national legislation under which entitlement to a VAT refund may be refused if the applicant fails, without adequate justification and notwithstanding the requests for information sent to it, to produce documents enabling it to prove that the conditions for the VAT refund are met before the tax authority issues its decision. In the present case, the Spanish tax authority twice asked the company to provide it with the missing information which it considered necessary for the assessment of the VAT refund claim. Thus, the company was not, in practice, prevented or unduly hindered from exercising its right to a VAT refund and, consequently, the rejection of its claim was not contrary to EU law.
1. The deadline for claiming the 2020 VAT refund from the EU SSC is approaching
Claims for refunds of tax paid in 2020 in other EU countries must be submitted by 30 September 2021.
Not sure if you will actually get a refund or if it is economically worthwhile? We will explain everything to you during a short consultation. This initial consultation is free of charge.
2. Further extension of the VAT waiver on respirators until 31 October 2021
The Ministry of Finance has extended the VAT waiver on the supply of respirators, including the purchase from other Member States and imports, until 31 October 2021. The relevant Decision is published in Financial Bulletin No. 31/2021. Like the previous waiver, this one also applies to filtering half-masks and respirators of class FFP2 and higher, including filters and other accessories for these filtering half-masks and respirators. More detailed information is provided in the Information on the remittance of VAT on the supply of respirators dated 2 February 2021.
1. Amendment to the VAT (e-commerce) Act: the OSS
The date of 1 July 2021 was set for the launch of the special one-stop shop regime for the whole EU. However, the amendment to the VAT Act, which was supposed to introduce the changes, has been delayed in the legislative process. The Senate debated it on 22 July and sent it back to the Chamber of Deputies with amendments. We would like to remind you that despite the fact that the amendment to the VAT Act was not implemented into Czech legislation in time, VAT payers can apply the new rules for OSS from 1 July 2021 according to the direct effect of the VAT Directive.
If you made a distance sale of goods or provided a service to EU customers in July and have not yet registered for OSS, remember that you have to do so by 10 August 2021 at the latest. You can only register for the EU or non-EU scheme after the supply has taken place and the registration application must be submitted by the 10th day of the month following the supply.
Information on paying VAT under OSS can be found in Financial Bulletin No. 30/2021.
If you are unclear about the new rules, please do not hesitate to contact us. We will be happy to advise you and resolve the registration for you.
2. Selected case law of the CJEU (07/2021)
C 521/1 CB - should they contain the VAT income originally concealed and subsequently charged?
The CJEU held that, where VAT taxable persons fraudulently concealed the existence of a transaction from the tax authorities and failed to declare the income received in respect of that transaction in their direct tax returns, the evaluation of the amounts paid and received in respect of the transaction in question, carried out by the tax authorities in the context of an audit of that return, must treat them as including VAT, unless, under national law, the taxable persons were able, despite the fraudulent conduct, to carry forward and subsequently deduct the VAT in question.
C 695/19 Radio Popular - extended warranty on goods as a possible incidental financial activity not included in the coefficient for determining the deductible proportion of the input price
The dispute concerned the provision by a seller of household appliances, as an insurance intermediary, of an extended warranty on goods purchased. The tax authority challenged the seller's practice of claiming full input tax deduction, since, in the tax authority's view, the seller was only entitled to a proportional deduction as he provided exempt insurance services.
According to the Court, the sale of an extended warranty for purchased goods takes the form of an insurance contract and must therefore be regarded as a service connected with insurance activities within the meaning of Article 174(2)(b) and (c) of the VAT Directive. The second condition, that the service is provided by an insurance broker or agent, is also satisfied (it is not the formal status of the service provider that must be taken into account, but the content of the services themselves, which the seller in the present case satisfies).
The CJEU then pointed out that only incidental financial activities, i.e. those transactions listed in Article 135(1)(b) to (g) of the Directive, can be excluded from the denominator of the fraction used to calculate the deductible proportion.
The CJEU held that Article 135(1) of the VAT Directive does not apply to intermediary operations for the sale of extended warranties carried out by a taxable person in the course of his main activity, which consists of the sale of domestic appliances, so that the amount of turnover relating to those operations cannot be excluded from the denominator of the fraction used to calculate the deductible proportion of input tax.
1. Amendment to the VAT Act: e-commerce
From 1 July 2021, the rules on the application of VAT to cross-border business-to-consumer (B2C) e-commerce transactions have changed. The VAT Directive introduces new rules for distance sales of goods (formerly the sending of goods), for trading goods via digital platforms and for the importation of low-value goods. The extension of the special one-stop shop scheme brought about by the amendment allows VAT due to another Member State to be paid through a domestic tax authority without the need to register for VAT in another Member State.
The amendment to the VAT Act, which regulates cross-border e-commerce, will be discussed by the Senate on 21 July. Even though the amendment was not implemented in Czech legislation in time, taxpayers can follow the direct effect of the VAT Directive from 1 July 2021. However, most other countries have implemented the new EU rules on "e-commerce" in time, including the new EUR 10,000 limit. Therefore, if Czech e-shops do not remit VAT in the country where they send goods to their final customers via the OSS scheme, they will be obliged to register for VAT in the Member States concerned, regardless of the delay in the legislative process. For more information, see the Information on the amendment to the VAT Act on e-commerce published by the Financial Administration on 21 June 2021.
We would like to remind you that the European Commission has published a Guide to the new extended one-stop shop scheme, which we have already informed you about in our March newsletter.
2. Further extension of the VAT waiver on respirators until 31 August 2021
The Ministry of Finance has extended the VAT waiver on the supply of respirators, including the purchase from the South China Sea and importation, until 31 August 2021. The relevant Decision is published in Financial Bulletin No. 25/2021 dated 28 June 2021. As with the previous waiver, this one also applies to filtering half-masks and respirators of class FFP2 and higher, including filters and other accessories for these filtering half-masks and respirators. More detailed information is provided in the Information on the remittance of VAT on the supply of respirators dated 2 February 2021.
3. Selected case law of the CJEU (06/2021)
C - 931/19 Titanium - creation of an establishment with regard to the lease of immovable property
The CJEU recalled that the concept of "establishment" requires a minimum coherence achieved by a permanent combination of human and technical resources necessary for the supply of certain services (see settled case law and Article 11 of the Implementing Regulation to the VAT Directive). In particular, a structure which does not have its own employees cannot fall within the concept of a "permanent establishment".
The CJEU then summarised that Titanium, which rented out two properties in Vienna, did not have its own employees in Austria and had contracted out certain management tasks, while retaining the right to take all important decisions concerning the rental of the properties. Accordingly, the Court concludes that, in the absence of Titanium's own employees through whom it carries out the rental transactions, the leased property cannot constitute a VAT establishment.
C - 182/20 BE - obligation to correct VAT deductions after declaration of bankruptcy
In the present case, the issue was that after the insolvency proceedings had been opened and the company had been declared bankrupt, the tax authorities did not recognise the right to deduct VAT on supplies made before the declaration of bankruptcy. It believed that those supplies did not serve its economic activity, since the declaration of bankruptcy brought it to an end. The crux of the matter was therefore whether the declaration of bankruptcy automatically gives rise to an obligation to correct the VAT deductions claimed on supplies made before the declaration of bankruptcy.
The CJEU held that the opening of insolvency proceedings, which entails the realisation of assets for the benefit of the company's creditors, cannot in itself affect the economic nature of the transactions carried out. It cannot therefore automatically create an obligation on the debtor to correct VAT deductions, unless the opening of those proceedings prevents the debtor from continuing its economic activity, in particular for the purpose of liquidating its business.
C - 58/20 K and C - 59/20 DBKAG - management of collective investment funds
The CJEU recalled that services provided by third parties to companies managing collective investment funds, such as the tax agenda consisting of monitoring that the income of the fund's shareholders is taxed in accordance with national legislation and the provision of authorisation to use software used to calculate the risk and performance indicators of individual collective investment funds, are covered by the exemption provided for in Art. 135(1)(g) of the VAT Directive, where those services are intrinsically linked to the management of collective investment funds and are provided solely for the purpose of managing them, even though the services as a whole have not been outsourced.
As regards the further assessment (the granting of a licence to use the software in question), the CJEU referred to the reasoning presented in C - 231/19 Blackrock, according to which such a licence may be considered "specific" to the management of collective investment funds if it is intended exclusively for such purposes.
1. Brexit - VAT refund from Great Britain in 2021
On 19 May 2021, the General Finance Directorate issued Information on VAT refunds to taxable persons established in the United Kingdom of Great Britain and Northern Ireland after the end of the transitional period.
The information summarizes the conditions for claiming a VAT refund, and gives details about the manner and form of applying for a tax refund. At the same time, it informs about the fulfilment of the principle of reciprocity in tax refunds.
British applicants must submit an application for a VAT refund in the Czech language to the Tax Office for the City of Prague on the prescribed form. The application for a calendar year can be submitted no later than June 30 of the following calendar year, otherwise the entitlement expires. However, the application can be submitted for a shorter period. The application cannot be submitted electronically.
Thanks to the principle of reciprocity, Czech entities can also claim a refund of VAT paid in the United Kingdom from the British tax administration. More information can be found on the UK Tax Administration website.
The only exception is the acquisition (purchase, import) of goods in the Czech Republic by a taxable person who is established in Northern Ireland and has been assigned a tax identification number for VAT purposes. Northern Ireland remains part of the EU for the trade of goods, meaning that VAT refunds can be claimed in the same way as in other EU Member States.
If you are interested in a VAT refund, do not hesitate to contact us. We can assist you and we will be pleased to process the request.
2. KOOV of 19 May 2021: Lease of real estate - time context
The amendment to the VAT Act effective from 1 January 2021 introduced certain restrictions on the possibility of applying the tax to the rental of real estate referred to in Section 56a (3) of the VAT Act. The lease of premises used for housing has been compulsorily exempt from VAT since 1 January 2021, without the right to deduct tax.
The Coordinating Committee addressed the question of whether the new wording obligatorily affects the lease of real estate referred to in § 56a para. 3 ZDPH, if this lease is provided under a contract concluded before 1 January 2021 and the landlord decided to proceed according to § 56a paragraph 3 of the VAT Act valid before 1 January 2021, i.e. he decided to apply the tax to the lease in accordance with the VAT Act.
According to the GFR, § 56a para. 3 of the VAT Act must be approached in such a way that if the obligation to acknowledge the performance arose on the day of its implementation (Section 51 para. until 31 December 2020, even such a lease will be compulsorily exempt from tax on the basis of the wording of Section 56a, Paragraph 3 of the VAT Act, without the right to deduct tax. Therefore, if a lease agreement was concluded, for example, in 2019 or 2020, then such rent cannot be exempt from VAT after 1 January 2021, but must be taxed. In this respect, the amendment to Section 56a(3) of the ITA, among other things, provided for a long period of time during which the law was already in force but had not yet entered into force, precisely to allow persons to adjust contractual relations to fully reflect the new legislation.
3. KOOV of 19 May 2021: VAT waiver by decision of the Minister of Finance
With regard to the decision of the Minister of Finance on the waiver of VAT due to an extraordinary event, published in Financial Bulletin No. 8/2021 (hereinafter the "Decision"), the aim of the paper was to clarify for application purposes that the taxpayer may proceed in accordance with the VAT Act. i.e. may apply VAT in the case of the supply of the goods listed in the Decision. In such a case, the performance provider is obliged to declare and pay this tax in accordance with the VAT Act, and the recipient of the performance is entitled to deduct it (for meeting the general conditions of §72 et seq. of the VAT Act).
The Chamber of Tax Advisers agreed that it is necessary for the recipient of the performance to be entitled to a tax deduction (subject to the general conditions of Section 72 of the VAT Act) in situations where the supplier of the performance acted in accordance with the VAT Act and declared output tax. KDP also argues that currently many taxpayers are primarily focused on the constant changes in the measures restricting their business, and so the GFR's information on the waiver itself and its subsequent practical application may escape their attention. As a result of a VAT return by the supplier, the recipient of the performance may find himself in a situation where he will be denied the right to deduct tax by the tax administrator, even though the supplier acted in accordance with the VAT Act. Although a correction of the tax granted is possible, it requires additional administration on the part of the supplier, who is not obliged to carry out the correction. The tax paid by the supplier, with the impossibility of deducting the recipient, will thus increase the price of the goods, violate the rule of VAT neutrality and the Decision instead of mitigating the effects of the pandemic, on the contrary, may even worsen the situation of the recipient.
However, the GFR does not agree with these conclusions. He argues that, although the conclusions may seem relevant, they would lead to complete chaos in the actual application. It would happen that some would exempt the performance, some would tax and everyone would claim a deduction. In practice, however, a uniform procedure for all payers is important. The decision already exists and has to be respected, with all the ensuing consequences.
4. Amendments to the GFR's instruction to waive fines for failure to submit an inspection report
On 10 May 2021, the Ministry of Finance published in the Financial Bulletin No. 21/2021 an updated version of the GFR D-29 instruction on the waiver of fines for failure to submit an inspection report (hereinafter referred to as the “Instruction”). The changes concern the Financial Administration's procedure for assessing the extent of the fine waiver and the justifiable reasons for not submitting an audit report and are as follows:
- The waiver of a fine for failure to submit an inspection report can only occur if this breach of a legal obligation has subsequently been remedied, ie (delayed) fulfillment of the obligation to submit the relevant inspection report / subsequent inspection report;
- In the list of "Justifiable reasons" for not submitting an inspection report, reason No. 10 was extended to the situation of non-functional data boxes on the last day of the submission deadline, if this outage was not planned in advance;
- In assessing the frequency of breaches of the obligation to file a tax return in due time, fines will not be taken into account for late tax returns waived by a general excuse or individual decision for an objective reason independent of the will of the tax subject.
5. Extension of VAT waiver for respirators until 30 June 2021
The Minister of Finance extended the VAT waiver for the supply of respirators, including acquisitions from JČS and import, until 30 June 2021. The relevant Decision is published in Financial Bulletin No. 23/2021 of 1 June 2021. The waiver concerns filtered half masks and FFP2 respirators and better, including filters and other accessories for these filtered half masks and respirators. This Decision builds on the current tax exemption for the supply of the listed goods in previous periods. More detailed information is given in the Information on remission of VAT on the supply of respirators dated 2 February 2021.
6. Selected case law of the CJEU (05/2021)
C - 844/19 EN and technoRent International - interest on late repayment
The CJEU recalled that a refund of an excess deduction as well as a refund due to the correction of the tax base under Article 90 (1) of the VAT Directive must be made within a reasonable time. If it is not paid within a reasonable time, the taxable person shall be entitled to default interest. In those cases, entitlement to default interest arises even if the law of a Member State does not provide for such an obligation, contrary to the principle of fiscal neutrality. The referring court must therefore do everything in its power to ensure the full effect of the VAT provisions of the Directive on the basis of an interpretation of national law in accordance with European Union law.
C - 4/20 ALTI - liability for tax and interest on arrears
The CJEU stated for the beneficiary's liability for default interest that, although the wording of Article 205 applies only to the payment of VAT, it does not prevent Member States from imposing a liability on the debtor for all accessories of that tax. A person is therefore required to pay, in addition to the amount of VAT, interest on arrears owed by the taxable person, if it is established that the person who himself claimed the right to deduct knew or should have known that the taxable person would not pay that tax. In the present case, the national legislation requiring both the recipient of the supply and the payment of default interest makes it possible to combat tax fraud and evasion in the field of VAT, thus contributing to the objective of ensuring the effective collection of VAT by the tax authorities under Article 205.
C - 248/20 Skellefteå Industrihus - abandonment of an investment project intended to be used for future taxable activities
In the present dispute, the Swedish tax legislation included, similarly to VAT, the lessor's option to choose to tax the lease of immovable property if the lessee is a taxable person and the object of the lease serves his economic activity. Similarly, it also stipulated the obligation to adjust the original tax deduction in the event of a change in the use of immovable property.
The CJEU recalled that, according to the case-law (C - 249/17 Ryanair, C - 734/19 ITH Comercial Timişoara), if an investment project intended to serve a future taxable activity is abandoned, the right to deduct must in principle be maintained. This also applies in cases where national law allows for the choice of taxation for the transaction in question. The VAT Directive therefore precludes national legislation which provides for the withdrawal of the right to deduct where the taxable person has been granted that right because he has chosen to tax the future output supply.
On the other hand, there must be a close and direct link between the right to deduct VAT and the use of the input supply in question for the purposes of taxable output transactions, so that if the taxable person ceases to intend to use it, before 'first use' or 'actual use', to carry out the output, then such a close and direct relationship is broken. The taxable person must therefore adjust the right to deduct tax under Articles 184 and 185 of the Directive.
1. Amendment to the VAT Act: e-commerce
The rules on the application of VAT to cross-border business-to-consumer (B2C) e-commerce transactions are set to change from 1 July 2021. These changes concern the rules for determining the Member State of taxation and will particularly affect those who sell goods to end customers in other EU Member States, for example via e-shops. The extension of the special one-stop-shop scheme brought about by the amendment allows VAT due to another Member State to be paid through a domestic tax authority without the need to register for VAT in the other Member State. The same principle can be applied to the sale of consignments up to EUR 150 from third countries to EU end customers. A new special scheme - the Import One-Stop-Shop - has been created for this purpose. Both the OSS and the IOSS can be registered from 1 April 2021, with the possibility to use it from 1 July 2021.
Although the amendment to the VAT Act on these changes is still in the legislative process (parliamentary print no. 867/0), the Financial Administration has already prepared basic information on the special regime of one administrative location at https://www.financnisprava.cz/cs/mezinarodni-spoluprace/mezinarodni-spoluprace-a-dph/oss.
We would like to remind you that the European Commission has published a Guide to the new extended one-stop-shop scheme, which we have already informed you about in our March newsletter.
If you want to learn more about the amendment to the VAT Act in the area of e-commerce and find out if the amendment also applies to your business, please register for BDO's webinar on this topic, which will take place on 4 June 2021. For more information, click here.
2. VAT exemption on respirators from abroad
In connection with the protection of the population against the spread of Covid-19, the Ministry of Finance has extended the VAT waiver to sales of respirators of category FFP2 and higher, diagnostic medical devices for Covid-19 testing and vaccines purchased from other EU Member States as well as non-EU countries. Until now, the waiver applied only to domestic supplies. VAT will be remitted if the taxable supply is rendered before 3 June 2021 in the case of respirators and before 31 December 2021 in the case of vaccines and diagnostic devices for Covid-19 testing. For more information, see Financial Bulletin No. 18/2021.
3. Selected case law of the CJEU (April 2021)
C 935/19 Grupa Warzywna - proportionality of penalties imposed by the Financial Administration
National legislation providing for a flat-rate penalty of 20% of a tax deduction wrongly claimed in case the parties to the transaction misclassified the transaction, where there is no indication of tax evasion, is contrary to the VAT Directive and the principle of proportionality.
According to the CJEU, Article 273 of the VAT Directive and the principle of proportionality preclude national legislation under which a taxable person who has incorrectly classified a supply exempt from VAT as a supply subject to VAT must pay a penalty of 20% of the overstatement of the refundable VAT wrongly claimed, even where the irregularity arises from an incorrect assessment by the parties to the transaction of the taxability of the transaction and there is no indication of fraud or loss of revenue to the Treasury, even in the absence of such special circumstances.
The CJEU held that the penalty in question in the present case is imposed automatically on the taxable person who misclassified the transaction, so that the way in which it is determined does not allow the tax authorities to assess its amount individually to ensure that it does not exceed what is necessary to achieve the objectives of ensuring the correct collection of tax and preventing tax evasion.
C 703/19 J. K. - sale of food in a fast-food outlet
The dispute concerned the determination of the correct rate of VAT on the supply of meals purchased by a customer at a fast-food outlet. The fast-food operator sold the food in various ways - inside the premises, through outlets for consumption outside the premises or inside shopping centres, where the customer consumed the food in designated areas.
The CJEU held that the term "restaurant and catering services" includes the supply of meals with sufficient support services designed to enable the final customer to consume those meals immediately, which is for the referring court to ascertain. The decisive importance is to be attached to the provision of the support services offered, which are linked to the delivery of the prepared meals, and those services must be sufficient to enable the immediate consumption of those meals and must prevail in relation to their delivery. In this respect, account must be taken of the presence of service staff, the provision of enclosed and heated areas, especially for the consumption of the food supplied, changing rooms, toilets and furniture and cutlery. If the final customer chooses not to make use of the material and human resources offered by the provider, the delivery of these meals must be regarded as not having been accompanied by any ancillary service and the supply must be qualified as a supply of goods.
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.
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