Czech Republic: Customer liability for VAT when payment made to unpublished bank account

A decision concerning customer liability for VAT when payment is made to an unpublished bank account

Customer liability for VAT when payment made to unpublished bank account

The Supreme Administrative Court issued a decision confirming that a payment made by a customer to an “unpublished” bank account does not in itself give rise to the taxable customer’s liability for unpaid value added tax (VAT). Rather, the court held it is always necessary to prove that the customer knew or could have known that the tax would not be properly paid.

The case identifying information is: Case No. 2 Afs 382/2019-33 

Summary

In this case, the tax administrator demanded that a customer pay VAT that was not remitted by the supplier. According to the tax administrator, there was a liability for unpaid VAT because the customer had paid for the received taxable supply to the supplier's Czech bank account (an account that had not been published by the tax administrator in the online VAT register).

A regional court denied the customer’s liability for the amount of VAT not paid by the supplier solely on the grounds that the payment for the taxable supply had been made to a bank account in Slovakia. The high court applied these conclusions also to situations when the payment for the taxable supply is made to a Czech bank account not officially published by the tax administrator, and in agreeing with the regional court, dismissed the tax administrator’s cassation complaint.

According to the Supreme Administrative Court (SAC), the fact that Section 109(2)(c) of the VAT law was fulfilled cannot in itself be considered the absence of good faith. For a liability for unpaid VAT to originate, the “knowledge test” must also have been met (that is, the customer or service recipient knew or could have known at the time of making the payment that VAT would not be properly paid). The fact that the payment was made to an account not published by the tax administrator did not mean that the customer was not acting in good faith (i.e., that the tax would be properly paid by the supplier).

The SAC emphasized that business practices vary and therefore the tax administrator needed to carefully assess the reasons why the payment was made to a bank account other than a published one, and then prove the absence of good faith. Otherwise, a liability could arise without the customer’s fault, which is prohibited by case law of the Court of Justice of the European Union.

Read an October 2021 report prepared by the KPMG member firm in the Czech Republic

 

The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.