SAC on actual supplier of gas on virtual trading point

In a case involving trading in natural gas on a virtual trading point, the Supreme Administrative Court (SAC) sided with the taxpayer and overturned the unlawful decisions of the administrative court and the Appellate Financial Directorate. The SAC concluded that the taxpayer had indeed purchased natural gas from a Czech supplier, as they had claimed from the beginning, and were therefore entitled to deduct VAT without having to pay the VAT themselves under the reverse charge mechanism (whereby the liability for VAT payment is transferred from the seller to the buyer). The tax administration had claimed that the supplier was a foreign person which had been registered with the market operator.

To resolve the case, the specific regime of gas trading on a virtual trading point was the key. Unlike in normal trading, there is no physical delivery of the gas upon its sale. Once the trade is executed, only the registered owner changes while the gas in fact remains in the transmission system. This places particular demands on proving the identity of the supplier. The trade is executed by entering identification data (unique counterparty code, quantity, gas day).

The Appellate Financial Directorate disputed that the gas was supplied to the taxpayer by a Czech company. The directorate argued that the actual supplier of the gas was the supplier's UK-based fellow subsidiary, which was registered with the market operator and in whose name the matching symbol was registered. However, this could not be verified with the operator at the time. When purchasing gas from a person from (at that time) another EU member state, under the reverse charge mechanism, VAT must be paid by the taxpayer themselves. The customer thus paid VAT twice: once in the price of the gas to their supplier, and the second time to the state, according to the Appellate Financial Directorate’s decision. This was also confirmed by the administrative court.

The taxpayer disagreed with their conclusions as they were convinced all along that the quantity of documents they had and demanded before concluding the trade with the Czech company had been sufficient to prove that they really had traded with the Czech company and not with another entity of the group. And the SAC agreed. According to the SAC, it was clear from the evidence presented that the taxpayer had traded with a Czech company and that the Czech company was able to supply them with natural gas on the exchange (albeit using a trading account of another entity).

We are pleased that the taxpayer trusted our litigation team and stood by their opinion despite the adverse decisions of the financial administration. As a result, we could see the SAC confirming that our opinion was correct from the outset.