Refusal to deduct VAT in chain-store businesses

19.3.2018

According to the settled judgments of the Court of Justice of the European Union (CJEU), the tax administrator may deny the taxpayer the right to deduct VAT only in the case when it would prove to the taxpayer that due to circumstances of the case where the taxpayer knew or should have known and could be part of fraudulent behaviour.

According to our experience, the tax administrator presents this rule very expressively in practice, when the tax administrator tries to collect VAT from the subject in the chain-store, whereby “the easiest way” goes.

Recently, the Supreme Administrative Court (SAC) issued a judgment in which it entirely rejected the tax administrator’s approach. In that case, the right to deduct was refused to the taxpayer whose direct supplier properly returned the VAT in question, but the VAT was not paid at the start of the business chain. However, according to the SAC, the requirement to verify the credibility of the partners in the business chain cannot be expanded extensively and without limit. In this case, it was entirely beyond the ability of the taxpayer to anticipate and examine all possible subjects who participated in the transaction in any way in different phases. It is, therefore, always necessary to look for the factual and causal connections of the relevant case.

In addition, the SAC, with reference to the basic principles of tax administration, stated that the tax cannot be factually “imposed on anyone”, and the tax administrator’s approach, in which the tax administrator prefers collecting tax on the entity that is the easiest to access, cannot be accepted.

In the light of the CJEU judgments, we do not consider the judgment in question to be a breakthrough, but it serves to protect the rights of the taxpayers, as it provides guidance how the tax administrator should, in the given cases, be treated in accordance with the legal regulations, in our opinion.




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