Liability for VAT in payments to foreign accounts contrary to EU law

In the judgement in question, the regional court, referring to the case law of the Court of Justice of the EU (CJEU), noted that the price may be one of the indicators to assess (non)involvement in tax fraud: if goods are offered for a price lower than can be reasonably expected, it may indicate that they are being sold without VAT, meaning that VAT probably will not be paid.

However, the main issue the regional court dealt with was liability for VAT where payment has been made to a foreign account. Article 21(3) of the Sixth VAT Directive in principle allows member states to provide that a person involved in the transaction may also be liable for VAT. Under the concept of liability as currently stipulated in the Czech VAT Act, a person becomes liable de facto just because they have made a payment to a foreign account. Yet, current legislation does not give the persons thus liable any chance to free themselves from such liability, not even by producing evidence proving that the supply recipient did not, and could not have known that VAT is not going to be paid by the supplier. Even proving that he had nothing else to do with the debtor will not help. According to a CJEU advocate general, this gives rise to a system of  no-fault (strict) liability, which goes beyond the scope of what is necessary to protect payments to public budgets.

Referring to several CJEU rulings, the regional court thus ruled that the existing concept of a supply recipient’s liability when payments are made to a foreign account is contrary to EU law. The question now stands what the tax administration’s next step will be. If the same conclusion is reached by the Supreme Administrative Court, we may be even looking forward to a change in legislation. Be that as it may, it is certainly advisable to use the regional court’s arguments as a defence in similar situations.