VAT treatment of compensation for stolen goods

The GFD agreed with the paper submitters that the theft of goods cannot be considered a supply of goods for consideration if the original owner of the stolen goods is not compensated in any way. This conclusion emanates from the CJEU's decision in Case C-435/03 British American Tobacco International and Newman Shipping, ruling that the theft of goods does not constitute a supply of goods for consideration and as such cannot be subject to VAT due to the lack of financial consideration and the perpetrator being a mere possessor of the goods without the right to dispose of them as owner.

 

Two other scenarios were also considered during the discussion of the paper:

1. The person who stole the goods is discovered and ordered to pay for the value of the goods.

2. A person other than the person who stole the goods is held responsible and ordered to pay the incurred damage. 

 

In these cases, it is crucial to determine whether they involve a supply of goods under the VAT Act.

 

The supply of goods for consideration may also involve a situation where consideration is provided upon agreement: having first stolen the goods, the perpetrator or another person then agrees to pay for the stolen goods or contractually undertakes to pay for them. At the same time, the condition must be met that a person other than the original owner of the goods acquires the right to dispose of the stolen goods as their owner, i.e. the right to decide on the further legal fate of the goods (e.g. if the stolen goods are subsequently found, on their sale or consumption).

 

It thus becomes clear that the assessment of whether compensation for stolen goods constitutes a supply of goods for consideration and therefore a taxable supply will depend on the contractual arrangement. Where the compensation paid for the stolen goods arises from an insurance policy or other liability relationship, the compensation will not constitute consideration for the supply of the goods unless the right to dispose of the stolen goods as their owner is transferred to another person (e.g. an insurance company, a warehouse). The transfer of ownership determines whether the compensation in a given situation will be taxable.

 

For a theft to be classified as a supply of goods for consideration, it is not decisive whether the compensation for the stolen goods is paid to the victim by the perpetrator or by another person. What is decisive is whether by mutual agreement the right to dispose of the goods as owner was transferred to another person and whether the compensation received constitutes direct consideration for that delivery.

 

If the compensation for stolen goods is not considered a supply of goods for consideration, the original owner of the goods must decide whether it will be necessary to adjust or settle the VAT deduction originally claimed, i.e., they must proceed in accordance with the GFD’s information. If they can prove the facts mentioned in the GFD’s information (e.g. the origination of a shortfall up to the amount of the shrinkage, confirmation from the Police of the Czech Republic), the settlement or adjustment of the VAT deduction is not performed. If they are unable to prove them, they must settle or adjust the VAT deduction.

 

For completeness, the GFD states that the right to VAT deduction for a received taxable supply does not arise if the taxpayer is unable to prove for what purpose the goods were used. Thus, the person providing compensation for stolen goods must not only prove that they received a taxable supply but also how they used such supply.

 

Considering the conclusions adopted by the Coordination Committee we recommend that compensation for damage should always be assessed according to the contractual arrangement and how the stolen goods were disposed of.