Case law
16 February 2018

Better times ahead for cross-border trading taxpayers?

The Supreme Administrative Court has recently stood up for a taxpayer who effected a supply of goods to another member state, i.e. a transaction exempt from VAT with entitlement to deduction. The crucial point of the dispute was the taxpayer’s good faith based on checking the customer’s registration in a publicly accessible system, and the issue of how to divide the burden of proof between the tax administrator and the taxpayer in this respect.

Veronika Červenková
Milan Hladík

The taxpayer submitted to the tax administrator documents supporting the transportation of the goods to Poland, and a confirmation from July 2008 on having checked the valid tax identification number of the Polish customer. According to this confirmation, the number was valid and the customer was officially identified as a VAT payer. Upon every billing, the taxpayer then checked the VAT registration of the Polish business partner in publicly available sources.

When reviewing the circumstances of the transportation, the tax administrator ascertained, among other things, that the Polish customer’s VAT registration had already been removed in March 2008, while the transactions in question only took place later. The tax administrator therefore classified the supplies as domestic taxable supplies, and assessed additional tax to the Czech taxpayer. The taxpayer claimed good faith, as from his perspective nothing indicated a possible involvement in a tax fraud on the part of the customer, but to no avail.

The court held that the burden of proof as to good faith cannot be transferred solely onto the taxpayer; otherwise, it would mean presuming a taxpayer’s knowing involvement in tax fraud; and such a presumption has no support in law. Despite submitting repeated international requests for information to the Polish tax administrators, the Czech tax administrator was unable to obtain any verification as to the authenticity of the confirmation submitted, i.e. it could not be confirmed whether the Polish taxpayer might have been deregistered retrospectively. As the authenticity of the documents submitted was not challenged by the tax administrator, it is possible that the customer’s tax identification number may have seemed valid at the time of effecting the supplies, probably due to an administrative error. The taxpayer thus had no evidence of the customer acting fraudulently, and would have had to assume this without any relevant indications.

In light of the produced evidence, the taxpayer’s assertion that he had been checking the information on the customer’s registration on a continuous basis in the respective system and had therefore been in good faith as to his Polish partner’s VAT registration at the time of trading, cannot be considered implausible.

Beyond the above stated, the court also voiced the idea that, in practice, the constellation that a supplier would take all conceivable measures against being involved in fraud is very unlikely to occur in cross-border trading. In this connection, the court explicitly stated that is these cases, the taxpayers should not be denied the benefit of good faith, as such a denial would be unreasonably harsh. Perhaps we may thus hope that the tax administrators’ approach to good faith will change in the future, along the lines of this Supreme Administrative Court’s decision.

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