1. On 18 December 2020, the Financial Administration published Information on the application of VAT on the lease of real estate from 1 January 2021.
Pursuant to the provisions of Section 56a, Paragraph 3 of the Value Added Tax Act effective from 1 January 2021, the payer may still decide to apply output tax to the lease of real estate to another payer for the performance of his economic activity, however, exceptions exist to this possibility of applying tax to outputs. This new restriction on the possibility of taxing the lease of immovable property also affects contractual relationships concluded before 1 January 2021. We would like to draw attention to negative consequences here.
2. On 17 December 2020, the Financial Administration published Information on the Impact of the United Kingdom's withdrawal from the EU in the field of VAT (BREXIT) from 1 January 2021.
From the point of view of the application of VAT, the United Kingdom will become a third country from 1 January 2021. This means that a similar principle will apply to this country as when trading with the USA, China or Russia, for example. 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 will continue to apply.
3. On 17 December 2020, the Financial Administration published Information on the remission of VAT on the supply of in vitro diagnostic medical devices and vaccines against COVID-19.
The Ministry of Finance has decided to waive 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.
For more information, see Financial Bulletin 35/2020.
4. On 1 January 2021, the Financial Administration published Information on the electronic filing of identified persons in the field of value added tax from 1 January 2021.
From 1 January 2021, the identified person is obliged to file tax returns or additional tax returns, summary reports or other reports electronically, with the exception of reports pursuant to Section 19 of the VAT Act (acquisition of a new means of transport), and only to file an application for registration or notification of change of registration data.
5. Selected case law of the CJEU (12/2020)
C 346/19 Y-GmbH - application for a tax refund not containing the serial number of the invoice
The CJEU stated that if the application for a VAT refund does not contain the serial number of the invoice, but contains another number enabling the invoice to be identified, the tax administrator is obliged to consider the application as submitted and assess it. During the assessment, the tax administrator is entitled (if he no longer has the original or a copy of the invoice) to request a serial number that clearly identifies the invoice. If his application is not complied with within one month, he is entitled to reject the application for a VAT refund.
C 656/19 BAKATI PLUS - exemption for the supply of goods for export, “the goods to be carried in a passenger’s personal luggage."
The CJEU stated that, for the purposes of the exemption, the term "goods to be carried in the personal luggage of travelers" does not include goods carried by a foreign person outside the EU for resale in a third country. The Court further stated that if the goods which left the territory of the EU are delivered and the supplier proves this fact, then it is an export of goods. Failure to comply with the customs formalities applicable to exports may not result in the loss of entitlement to the exemption on exportation.
C 488/18 Golfclub Schloss Igling - Interpretation of the term 'non-profit-making body' for the purposes of the exemption for sports-related services
Article 132, paragraph 1, point (m) The Directive does not oblige Member States to exempt all services closely linked to the practice of sport. That article does not have a direct effect, that is to say, where the legislation of a Member State exempts from VAT only a limited number of sports-related services, the non-profit-making body of that provision cannot rely directly on national courts. The CJEU further pointed out that the term "non-profit-making entity" within the meaning of this provision may not make a profit for distribution to its members. This is true throughout its existence. In the event of its dissolution, it cannot therefore distribute to its members the profit which it has achieved and which exceeds the contributions paid into it to the share capital (or the market value of the deposits).
1. Overview of the most important changes in VAT for 2021
- The MY TAXES project
In January 2021, the General Finance Directorate should launch the so-called "online tax office" based on an amendment to the Tax Code as part of the MY TAXES project. This will allow taxpayers to communicate with the tax office without having to physically visit it. It will be possible to file a tax return for all taxes. Taxpayers will receive a personal tax calendar with notification of the upcoming tax liability, as well as the function of automatic partial filling of tax forms in the virtual office. However, it will not be possible to deliver documents via this portal. They will continue to be delivered via the tax information box.
- Obligation for identified persons to file a VAT return electronically
Following the expansion of the electronic tax administration, the identified persons will also be obliged to submit an electronic form when filing VAT returns. This mainly involves applications for registration, tax returns, control and other reports.
- Advances for tax deduction
A positive change that will bring VAT payers an improvement in terms of cash flow and increase their legal and business security is the introduction of the institute of advance payment for tax deduction. The Constitutional Court concluded that within the framework of a tax audit or a procedure to remove doubts (which examines only a part of the VAT deduction), it is not possible for the tax administrator to also withhold part of the deduction that is not subject to examination. Until now, the tax administrator could withhold the entire excessive deduction, even though only a small part of the deduction was subject to control. Newly, a part of the excessive deduction, which the tax administrator does not intend to verify within the control procedures, will be returned to the taxpayer in the form of an advance, even before the tax is determined. The deposit will not be refunded if its amount does not exceed CZK 50,000. If the advance paid exceeds the total statutory claim, the taxpayer will be obliged to pay the difference between the refunded deposit and the amount of tax within 15 days from the date of legal force of the payment order as well as interest on arrears. The latter can be prevented by a timely request for non-payment of the prescribed deposit.
- Reduction of interest on late payment of tax
The amendment also introduces a comprehensive revision of interest and, among other things, reduces interest on late payment of tax by six percentage points. By the same token, interest on the amount received will be halved (i.e. to half the repo rate increased by four percentage points). Furthermore, the tolerance period for interest on arrears will be reduced from four calendar days to three. On the other hand, the amount of non-prescribed interest and the non-prescribed fine for late submission will increase from CZK 200 to CZK 1,000. A complete novelty is the possibility of individual waiver of a fine for late claim of tax (up to 100%). This was one of the last sanctions that could not be waived.
- Application of value added tax to the lease of real estate
The current regulation of the VAT Act allows a VAT payer to decide to apply VAT to the lease of real estate to other payers, provided that the property is used for carrying out an economic activity. However, from 1 January 2021, this option will be limited in cases where the subject of the lease for another VAT payer is real estate that includes premises for permanent housing. More information can be found in our article VAT ALERT: Restrictions on the application of VAT to rental real estate from 1 January 2021.
2. Selected case law of the CJEU (11/2020)
C 42/19 Sonaecom - the actual use of performance for purposes other than those for which it was originally intended
The CJEU stated that the actual use of goods and services takes precedence over the original intention. A taxable person is not entitled to deduct VAT on a supply which was originally acquired as a cost for the future supply of taxable supplies but is in fact used only for exempt transactions. Nevertheless, the CJEU confirmed the deduction from the performance received in the form of a market analysis made by an active holding company for the intended purchase of shares in the company that did not take place in the end.
C 734/19 ITH Comercial Timişoara - failed investment and possible obligation to correct the deduction; requalification of the contractual relationship by the tax administrator
The right to deduct VAT on property and services acquired for the purpose of carrying out taxable transactions is retained if the originally planned investment project was abandoned due to circumstances beyond the control of the taxable person. The CJEU stated that if the person intends to continue using the acquired goods and services for taxable transactions, the adjustment of the deduction is not appropriate. It will be interesting to see how the case law develops, whether this condition will really always be required or whether it is only an illustration of the CJEU's reasoning in this particular case law.
In addition, the CJEU stated that if a taxable person builds a building in accordance with the needs and requirements of another person who is to rent the building after its completion, then in the absence of a commission or similar contract, the commission agent institute will not apply for VAT purposes.
1. New VAT relief
Remission of interest on arrears of VAT incurred by taxpayers listed in the Decision (for which more than half of the income came from activities that were prohibited or limited by Government restrictions in the period from 1 June 2020 to 30 September 2020) for September, October and November 2020 and for the 3rd quarter of 2020 for quarterly taxpayers, if the tax is paid by the end of 2020 at the latest. The condition is that the taxable entity notifies the relevant tax office of the fact either via the online Financial Administration form or by e-mail. Another condition is that these obligations are paid by 31 December 2020.
In accordance with EU Commission Decision No. 2020/1101, the period for exemption from customs duties and VAT on imports of medical supplies and equipment is extended until 30 April 2021. Exemption from customs duties and VAT on imports of goods applies only to state entities, charities or charitable organisations and rescue units. For this reason, the conditions for exemption from customs duties and VAT published by the Directorate-General for Finance have been updated, under which the exemption will be recognised.
VAT payers are collectively exempt from VAT for free delivery of listed goods (selected protective and medical devices) and free delivery of goods or free provision of services for selected entities (medical facilities, IRS units, etc.) from 1 October 2020 to 31 December 2020. If the payer delivers the goods free of charge and is subject to a waiver under the Decision, the right to deduct will be retained for the taxable supply received. Similar conditions for waiver are also published in the GFR Information from the spring of this year: Updated GFR information on the remission of value added tax for free delivery of selected goods.
2. Selected case law of the CJEU (10/2020)
C 335/19 E. Spzoo - Reduction of the tax base for bad debts
The right to correct the tax base and the obligation to correct a previously applied deduction for non-payment of a claim does not depend on maintaining the creditor's and debtor's status as taxable persons, although according to national law it is not possible to make a correction. In this respect, the VAT Act conflicts with the Directive (especially Section 46 (3) (h), Section 46 (7)). The creditor may therefore reduce the tax base if they cease to be a taxpayer after the performance, and the debtor who ceases to be a taxpayer after the performance is obliged to reduce the previously applied tax deduction.
C 235/19 United Biscuits - Pension fund management as an insurance activity
Investment management services provided within an employee pension fund, without any coverage of the risk associated with them, cannot be considered as insurance activities under Section 55 of the VAT Act and therefore cannot be exempted from tax.
3. Postponement of EET until the end of 2022
The postponement of electronic sales records until 31 December 2022 means that until the end of 2022, income tax payers do not have to send sales data to the tax administrator, do not have to issue receipts under the Sales Records Act and are not obliged to place an information notice. This applies both to entities included in the first two waves (wholesale, retail, catering and accommodation services) and to entities that were originally scheduled to start registration from 1 May 2020. The suspension concerns the normal, simplified and special sales registration regime.
1. Alert for taxpayers wishing to claim a VAT refund for 2019 from other Member States (deadline 30 September 2020)
The Financial Conduct Authority alerts value added tax payers wishing to apply for a VAT refund from other Member States under Section 82 of the VAT Act for 2019 that the latest deadline for submissions is 30 September 2020.
2. Update of Guideline D-29 to waive sanctions on control statement
Based on the decision of the Directorate-General for Finances, Guideline D-29 is updated in the following areas:
- Clarifying the definition of "gravity of tax or accounting breaches."
- Adding an example of a serious breach: The person does not properly maintain or keep a register provided for by the legislation or imposed by the tax administrator.
- Clarification of justifiable reasons and their relation to individual sanctions.
- Adding that, in exceptional situations, the tax administrator can also consider other reasons than the ones listed.
- Supplementing the type of tax entity breach: At the date of the decision on the application, the tax administrator records with the tax entity arrears from another tax procedure that is being enforced (listed on the execution order).
- Statement on the concurrence of waivers and appeals.
3. Selected case law of the CJEU (06-09/2020)
C-43/19 Vodafone Portugal
This is not compensation for damage, but taxable performance if the customer withdraws from the contract before the end of the commitment period and is charged the amounts that the customer would have paid had they honoured the contract.
The mere non-registration of a claim in insolvency proceedings alone cannot prevent the possibility of recovering the tax paid. When a creditor proves that they would not have been reimbursed in any event, the adjustment of the tax base must be allowed.
C-231/19 BlackRock Investment Management (UK) Ltd
A single supply containing both taxable and exempt performance cannot be exempted (collective investment fund management).
C-610/19 Vikingo Fővállalkozó
The right to deduct from the acquired goods cannot be denied on the grounds that invoices relating to these purchases cannot be considered credible (the supplier's identity has not been determined, accounting errors, supply chain illogicality, inconsistencies with previous links in the chain). Such a refusal may be granted only if it is established to the requisite legal standard that the taxable entity actively participated in the tax evasion or knew or should have known that those transactions form part of the tax evasion.
C-528/19 Mitteldeutsche Hartstein-Industrie AG
In the case of an induced investment (in this case, an adjustment of the road for heavy vehicles), the right to deduct is maintained due to the connection with economic activity. In this case, there is no obligation to pay VAT when handed over to the municipality free of charge.
1. Amendment to the VAT Act with effect from 1 September 2020 (QUICK FIXES)
The amendment to the VAT Act comprises the following changes:
- Assignment of transport for chain deliveries of goods within the European Union.
- Delivery and acquisition of goods within the warehouse regime (call-off stock warehouses).
- Tax exemptions on supplies of goods to another Member State.
- Means of proof for tax exemption on supply of goods to another Member State.
From 1 January 2020 to 31 August 2020, a taxable entity can proceed voluntarily under the direct effect of Council Directive (EU) 2006/112 / EC of 28 November 2006 on the common system of value added tax (the "VAT Directive"). The selected changes listed in the VAT Directive were not transposed into the VAT Act on 1 January 2020 due to delays in the legislative process.
By implementing European legislation into the Czech VAT Act, the tax administrator obtained a tool to enforce and possibly sanction the new provisions, especially regarding the assessment of:
- the exemption to another EU Member State; and
- correct setting of a special type of consignment warehouse (call-off stock).
2. Current judgment of the Supreme Administrative Court on the amount of interest on the excessive VAT deduction withheld
In a recent judgment (1 Afs 445/2019), the Supreme Administrative Court (SAC) stated that Section 254a of the Tax Code, as amended from 1 January 2015 to 31 June 2017, is in conflict with EU law. According to the Tax Code, in this period the taxable entity was entitled to interest after five months of only 1% + the repo rate set by the Czech National Bank (CNB). However, the SAC ruled that the taxable entity is entitled to interest according to an earlier court decision in the Kordárna case (7 Aps 3/2013), i.e. 14% + CNB repo rate, from the expiry of the three-month period from the day following the last day of the relevant tax period.
The SAC's arguments are also applicable to retained excessive deductions in the period from 1 July 2017 to 31 December 2020, when according to the Tax Code, the interest rate increased only slightly to 2% + the CNB repo rate.
Our BDO tax and legal team is successfully engaged in several similar cases, where only a confirmatory judgment is expected.
1. Extension of exemption from customs duties and VAT on imports of goods for the purposes of the COVID-19 pandemic until 31 October 2020
In accordance with Commission Decision 2020/1101, the period for exemption from customs duties and VAT for imports of goods necessary to combat the consequences of the spread of COVID-19 is extended until 31 October 2020. Exemptions from customs duties and VAT for the import of goods concerns only state entities, charities or rescue units under certain conditions.
2. The European Council agreed to move the so-called e-commerce amendment to 1 July 2021
In June 2020, the European Council proposed postponing the amendment on VAT e-commerce by six months due to the COVID-19 pandemic. As a result of the reform, Member States expect to ensure tax revenues and create a level playing field for local e-commerce businesses.
Approved changes in e-commerce include:
a) extension of MOSS (Mini-One-Stop-Shop) for sending goods and providing other services to end customers (B2C) within the EU;
b) introduction of a new IOSS (Import One-Stop-Shop) for consignments up to EUR 150 from third countries;
c) introduction of a special regime for the sale of goods to the final customer from third countries via internet interfaces and platforms (e-shops);
(d) abolition of the VAT exemption for low value imports up to EUR 22.
3. QUICK FIXES will finally be implemented
The implementation of the European legislation on QUICK FIXES into Czech law is becoming a reality. On 31 July 2020, the approved law was sent for publication in the Collection of Documents.
In the field of VAT, it is a matter of unifying the conditions for:
- exemption of delivery of goods to another EU Member State, including proof of transport;
- transport assignment for chain transactions; and
- call-of stock.
Nothing else will change for Czech payers, who could use the direct effects of European legislation from 1 January 2020. However, implementation is essential for the state administration – it will already be able to effectively enforce the new rules.
The law in the area of QUICK FIXES will take effect on the first day of the calendar month following the day of its publication in the Collection of Documents, probably on 1 September 2020.
Changes in VAT rates from 1 July 2020
With effect from 1 July 2020, in accordance with Act No. 299/2020 Coll., which amends certain tax laws in connection with the SARS-CoV-2 coronavirus outbreak, there are changes in tax rates for the following transactions. The 10% VAT rate is newly applied to the following transactions:
- Ground mass regular public transport of passengers and their luggage and passenger transport by ski lifts.
- Accommodation services.
- Admission to shows, theatres, circuses, amusement parks, concerts, museums, zoos, cinemas, exhibitions and similar cultural events or similar cultural establishments; admission to botanical gardens, nature reserves and national parks.
- Admission to sporting events; use of indoor and outdoor sports facilities for sports activities; services related to the operation of recreational parks and beaches.
- Turkish baths, saunas, steam baths and salt caves.
On 30 June 2020, the General Financial Directorate of the Czech Republic issued information clarifying ambiguities in interpretation.
Opinion of the General Financial Directorate of the Czech Republic on the assessment of the primary and secondary fulfilment
The General Financial Directorate published its opinion on questions related to the activities provided in hotel facilities on its website. From the answers it is possible to decide in which cases the tax administration will adhere to the principle of primary and secondary fulfilment, where the secondary fulfilment assumes the primary fulfilment regime (incl. VAT rate), and where it will require division into separate transactions with separate regimes (i.e. also separate VAT rates).
Extension of the period for waiving the application of VAT for free-of-charge supply of selected goods
Based on a decision of the Minister of Finance issued on 10 June 2020, the period after which the application of VAT is waived for the following free-of-charge supplies is extended until 31 July 2020 (the decisive factor being the moment the obligation to declare tax arises):
- basic protective equipment, selected medical devices (e.g. face masks and surgical masks, respirators, goggles, masks and shields, COVID-19 test kits) and raw materials and materials intended for the manufacture of these items;
- raw materials and materials intended for the production of disinfectants to payers who are authorised to manufacture the products in question (e.g. for the production of alcoholic solutions, hydrogen peroxide and other disinfectants).
Financial Newsletter No. 9/2020
Reduction of the VAT rate on accommodation services and cultural and sporting events
The Chamber of Deputies approved the anti-crisis tax package, which also reduces value added tax on accommodation services, admission to cultural events and sporting events, admission to sports grounds (including chairlift tickets) and admission to saunas and other similar facilities. In all cases, the VAT rate would be reduced to 10%.
The Senate returned the government proposal with amendments to the Chamber of Deputies, which will discuss the bill from 16 June 2020. After approval, it will remain only to be signed by the President of the Czech Republic and published in the Collection of Documents. The law should take effect on the first day after its publication in the Collection of Documents, which could occur as soon as June 2020.
Abolition of VAT exemption on imports of small consignments up to EUR 22
On 13 May 2020, the Government submitted a bill to the Chamber of Deputies, which transposes the approved European legislation in the area of e-commerce. The law is expected to take effect on 1 January 2021.
We will inform you about the further course of the legislation. We are also preparing a separate article describing significant changes to e-commerce in the EU since 2021.
Suspension of EET until the end of 2020
Upon publication in the Collection of Laws with effect from 3 June 2020, the obligation to electronically record sales is suspended until the end of 2020. The suspension of the so-called "EET" system means that until the end of 2020, taxpayers do not have to send sales data to the tax administrator, do not have to issue receipts in accordance with the Act on the Recording of Sales, and are not obliged to place an information notice.
The amendment applies both to entities that fell into the first two waves (i.e. wholesale, retail, catering and accommodation services) and to entities that were to start recording sales data from 1 May 2020. At the same time, it applies to the standard, simplified and special electronic cash register system.
The obligation to record sales thus arises only from 1 January 2021.
REDUCTION OF VAT RATES FROM 1 MAY 2020
The Ministry of Finance of the Czech Republic announced the reduction of VAT rates to 10% for selected transactions. The goods and services to which the reduced 10% VAT rate applies from 1 May 2020 include:
- Interior cleaning services - performed in households (originally 15%)
- Window cleaning services - performed in households (originally 15%)
- Home care for children, the elderly, the sick and the disabled (originally 15%)
- Repair of footwear and leather goods (originally 21%)
- Bicycle repair (originally 21%)
- Hairdressing and barber services (originally 21%)
- Catering and beverage services (originally 15%), including draft beer (originally 21%). The 10% reduction in VAT on draft beer only applies to its sale as a catering service, as allowed by harmonised European legislation *
- Water treatment and distribution networks (originally 15%)
- Drainage and wastewater treatment, including other services related to these activities (originally 15%)
- Potable tap water, including hot water (originally 15%) *
- E-books and audiobooks (originally 21%) *
- Book lending (originally 21%)
- Colouring books, maps (originally 15%)
*In more detail: https://www.financnisprava.cz/assets/cs/prilohy/d-seznam-dani/INFORMACE_sazby_dane_od_1_5_2020_FINAL.pdf
MAJOR CURRENT JUDICATURE OF THE CJEU (Court of Justice of the European Union)
Verdict C-48 / 19 - Exemption of medical services provided over the phone
The CJEU has ruled that tax exemptions can also be considered for health and illness counselling services provided by telephone. However, two conditions must be met:
- The consultation must primarily follow the therapeutic purpose, which is, for example, explaining the state of health, proposing changes in the treatment and use of the patient's medication. It cannot be a general information about diseases and treatment.
- The expertise and quality of professionals who provide these telephone services must be equivalent to that of other medical providers.
JUDGMENT C-94/19 HIRE OF LABOUR AS SUBJECT TO TAX
The CJEU concluded that, from the point of view of VAT, there is also a direct link between the performance and its consideration, even for a temporarily assigned employee, regardless of the method and calculation of the price. This means that a transaction in the form of a temporary assignment of an employee is always subject to tax. This judgment is in conflict with the current administrative practice in the Czech Republic, where according to the Labour Code the temporary assignment of an employee, i.e. primarily the calculation of the price at the level of costs, is not considered to be subject to tax. In accordance with the case law of the CJEU, we recommend invoicing for temporarily assigned employees to be considered subject to tax.
WAIVER OF VAT ON FREE DELIVERY OF GOODS AND SERVICES TO SELECTED ENTITIES
The Ministry of Finance of the Czech Republic forgives the application of VAT from 12 March 2020 until the end of the state of emergency - free of charges:
- Delivery of goods if these goods have been delivered for the needs of health care providers
- Provision of a service if this service has been provided for the needs of health care providers
- Delivery of goods if these goods have been delivered for the needs of the essential components of the integrated rescue system or the Army of the Czech Republic
- Provision of a service if this service has been provided for the needs of the essential components of the integrated rescue system or the Army of the Czech Republic
- Delivery of goods if these goods have been delivered for the needs of social services facilities
- Provision of a service if this service has been provided for the needs of social services facilities
In more detail: https://www.financnisprava.cz/assets/cs/prilohy/d-seznam-dani/INFORMACE_sazby_dane_od_1_5_2020_FINAL.pdf
CONDITIONS FOR EXEMPTION FROM CUSTOMS DUTIES AND VAT ON IMPORTS OF GOODS FROM THIRD-WORLD COUNTRIES DUE TO THE COVID-19 PANDEMIC
The Financial Administration of the Czech Republic has issued information providing a comprehensive overview of the possibilities of exemption from customs duties and VAT on the import of goods from third-world countries, in connection with the COVID-19 pandemic.
The only goods from third-world countries that can be exempted from customs duties and VAT must be imported by:
1. A state subject, charity or charitable organisation if:
a) the goods will be distributed or available, free of charge, to the victims of the pandemic or people in need in connection with COVID-19 (e.g. face masks provided free of charge to citizens); or
b) the goods are received as a gift within international relations.
2. Rescue units, where the goods are intended to satisfy their needs after the rescue work (e.g. medical equipment).
3. A private individual, where the goods are of a non-commercial nature with a maximum value of EUR 45 and the consignor is a private individual.
4. A private individual or business if the imported goods are of negligible value, i.e. up to EUR 22.
Furthermore, the duty exemption (but not VAT) can be applied to goods imported from third-world countries:
1. Medical facilities, hospital departments and health research institutes if certain conditions are met.
In more detail: https://www.financnisprava.cz/assets/cs/prilohy/fs-pro-media/2020-04-07_Informace-osvobozeni-od-cla-a-DPH.pdf
EET'S LAST PHASE DATE
Since it appears that 17 May 2020 is the last day of the state of emergency, the postponement of the start of the last phases of EET will end on 17 August 2020. It follows that 18 August 2020 will be the day when almost all income taxpayers will be required to record sales in cash. Nevertheless, it is possible that in accordance with the proposal of the Government of the Czech Republic the postponement will last until the end of this year. However, this proposal must be approved by the Parliament of the Czech Republic.