Application of reverse charge to supplies of movable items when providing construction or assembly work
The Supreme Administrative Court dealt with the correctness of applying the reverse charge regime to the modernisation of a dairy which also included supplies of movable items functionally related to the dairy. At the heart of the dispute was whether the movable items supplied could be regarded as ancillary to the construction and assembly work provided and thus be also subject to the reverse charge regime. The SAC confirmed the conclusion of the regional court and the tax administrator that in the specific case at hand this was not the case.
ZETES KT, spol. s r.o. performed work for its customer comprising the modernisation of a dairy for an agreed price excluding VAT. The work also included the delivery of an especially modified Citroën refrigerated truck, a digital scale with label printer, a vacuum packer, stainless steel racks, a glass refrigerator, a hand forklift, a refrigerator and freezer, cheese moulds, and mobile work desks and steel racks.
The company applied the reverse charge regime and therefore did not pay output tax on the supply provided. They argued that the VAT Act allowed the reverse charge regime to be applied to taxable supplies carried out in connection with the provision of construction or assembly work, which, in their opinion, was the case here.
The interpretation of the reverse charge provisions was unreasonably broad, the court ruled
Following a tax inspection, the tax administrator assessed additional output tax and related sanctions. Their approach was later confirmed by the regional court: it stated that the interpretation of the provision in question to the effect that it also applied to supplies related to the purpose for which the immovable property in question would be used, was unreasonably broad. In its decision, the regional court also referred to a commentary on the VAT Act, which provides some guidance on how to assess whether a supply is related to construction or assembly services. According to the commentary, this is the case, e.g., in the delivery and installation of equipment that is firmly attached to the building. In the case of a dairy, this can be, e.g., industrial machines for milk filtration, centrifugation, pasteurisation, ventilation or homogenization.
The commentary on the law indicates in what direction its interpretation should be going and, according to the regional court, it clearly implies that the movable assets mentioned cannot be considered accessories to which the reverse charge regime could be applied. To conclude, the regional court added that otherwise even extreme interpretations would be admissible, to the effect that to transfer the tax liability to the customer, it would suffice for the ancillary supply to be indirectly related to the future use of the building. The regional court’s conclusions were also confirmed by the Supreme Administrative Court in cassation complaint proceedings.