Case law
15 March 2018

New rules of liability for unpaid VAT according to SAC

The Supreme Administrative Court has specified the conditions of a supply recipient’s liability for VAT unpaid by the supplier: a payment to a foreign account cannot automatically give rise to liability.

Viktor Dušek
Jana Fuksová

Previously, the Regional Court in Ostrava held that liability for unpaid VAT when a payment is made to a foreign account is contrary to EU law. A long-awaited SAC judgement now denied this, yet provided more details on how the conditions of liability should be interpreted in conformity with EU law. SAC emphasised that when applying laws, it is necessary to also consider their meaning and purpose (not just the language), and that the interpretation compliant with EU law must be given preference.

SAC noted that making a payment to a foreign account is entirely legal and in many cases not at all unusual. Within the EU, it is moreover protected by the free movement of capital. Foreign payments thus cannot automatically establish liability, although the literal wording of the law may suggest so. Apart from the payment itself, there must be also the circumstance that the payer knew or could have known that the purpose of paying abroad was not to pay tax. Conditions stipulated in the Tax Procedure Rules also have to be taken into account: the supplier remains the primary debtor, and the tax administrator has to prove that they at least tried to collect the tax from them, yet to no avail.

Moreover, it is up to the tax administrator to prove that the conditions for liability have been met. It is irrelevant that the VAT payer may eliminate the risk of liability by a special manner of securing tax, i.e. paying the VAT on the invoice directly to the tax administrator’s account; this procedure may also cause complications in business relations. To conclude, the SAC stated that the public interest in tax collection cannot be limited solely to gaining income for the state budget: a fair collection of tax from those who have the primary tax burden is equally important.

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