Czech Republic: Adequate proof, VAT exemption for supplies of goods to EU customers (court decision)

Incorrect identification of the EU customer does not necessarily mean that the VAT exemption had to be denied

VAT exemption for supplies of goods to EU customers (court decision)

The Supreme Administrative Court issued a decision on proving supplies of goods that are exempt from value added tax (VAT) when provided within EU to customers other than those declared on the EC sales list.

The decision indicates that an incorrect identification of the EU customer does not necessarily mean that the VAT exemption had to be denied.

The case identifying information is: 4 Afs 115/2021-45

Background

The case before the Supreme Administrative Court concerned a situation when the tax administrator assessed a company (a Czech VAT-payer) an additional output tax for supplies of rapeseed oil to another EU Member State (in this case, Poland).

At issue was whether there had been sufficient proof that the rapeseed oil had actually been delivered from the Czech Republic to Poland and whether the company had to bear the burden of proof in identifying its Polish customers. The company had provided the following to the tax authority: CMR notes, customers’ certificates of delivery and acceptance of goods, weighing notes, affidavits from the carriers, etc. However, according to the tax authority, the documents did not contain all the necessary information (e.g., the person taking over the goods, signatures, and dates).

Decision of Supreme Administrative Court

The Supreme Administrative Court referred to a recent judgment (C-154/20 Kemwater ProChemie) of the Court of Justice of the European Union (CJEU) concerning the denial of a VAT deduction when the actual supplier had not been identified. The CJEU had noted that one of the conditions for claiming the right to deduct VAT is that the supply recipient must prove, based on objective evidence, that the supplier acted in the capacity of a taxable person. To deny the claim on the basis that the actual supplier was not identified, but was a taxable person would be contrary to the EU principle of tax neutrality.

The Supreme Administrative Court followed similar logic in this case—if the company supplied rapeseed oil to a customer other than the one identified in the EC Sales List, then the right to deduct VAT could not be denied if it was shown that the customer was a taxable person. If the tax authority denied this right to deduct VAT, this would constitute a breach of tax neutrality that is a fundamental prerequisite for the operation of the VAT system, the high court held.

The Supreme Administrative Court pointed out that by submitting weighing notes, the company had proved the delivery of rapeseed oil to refineries in Poland in quantities in excess of tens of tons, which according to the court, meant that the receipt of such quantities of oil could only have been carried out by a customer liable to tax. However, the tax authority had not considered or examined this fact.

The Supreme Administrative Court therefore found that not all relevant facts had been established to deny the company its right to deduct VAT. 

KPMG observation

The decision suggests that the incorrect identification of an EU customer does not necessarily mean that a VAT exemption must be denied.

Read a March 2022 report prepared by the KPMG member firm in the Czech Republic

 

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