In order to help prevent tax evasion and chain fraud, legislators implemented the first conditions into the Czech VAT law in the year 2011, which says that it could be possible to pay the unpaid VAT instead of the supplier.
From the year 2011, the scope has widened, because the data acquired from the control reports will be used to make the process of collection of taxes “faster”. The liability means that the situation can arise in practice, where the purchaser has to pay the supplier’s unpaid VAT to the revenue office. Even when this purchaser has already paid his monetary obligations to the supplier. In this case, the purchaser pays the tax on the tax document twice – one to the supplier and another to the revenue office. The liability for the purchaser of the goods or services can develop from more reasons that are listed in §109 of the VAT law. The Czech VAT law is valid only for Czech taxpayers and for Czech taxable liabilities. It is necessary to say that the liability develops without regard to the amount of VAT the purchaser has really claimed from the relevant liability.
The first criteria where the purchaser can get into this position of liability is the compliance test about the supplier – the so-called principle “He knew or should know”. The purchaser is liable in the case, if the payment for the liability is:
- different from the normal price without reasonable economic ground. The tax administrator judges the normality of the price on the basis of apprising the asset law. The test of price normality not only applies to the connected persons but between independent parties too. In practice, it is, for example, providing big discounts from the fulfilment price.
- provided completely or particularly by the bank transfer out of the Czech Republic. How I listed above, it applies to the businesses between Czech taxpayers. In case the Czech taxpayer requests to transfer the payment to a bank account which is kept abroad, the transfer is considered to be “suspect” by the tax administrator and that is why it is concluded to the liability.
- provided by the bank transfer to another bank account which is not the account of the supplier published on the websites of the financial administration and the current payment exceeds two times the amount according to the law of limiting the payment in cash (currently 540 000 CZK).
The next moment the purchaser can get into the situation of being the guarantor is, while the taxable liability is realised or the payment is provided, the information that published on the websites of the financial administration states that he is not a reliable payer.
If the payer wants to prevent the liability, the law allows him to use the tax insurance defined in §109a of the VAT law. The VAT liability will not be applied in the case the purchaser pays the VAT into the bank account of the tax administrator instead of the supplier. One part of the payment of the liability will be paid to the supplier and the other part to the tax administrator into the special bank account. I recommend that you adopt this process in the business contracts to prevent disputes because of the underpayments to the supplier.
I want to draw your attention to the fact the tax administrator should firstly exact the non-paid tax from the supplier. In this case, I recommend contacting the taxpayer, who can appeal against this call that has suspensive effect – it happens in practice that the tax administrator calls directly for the payment from the guarantor instead of the unpaid VAT from the supplier.
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