SAC sides with taxpayer in appeal against VAT registration decision
In its recent ruling, the Supreme Administrative Court (SAC) stated that if an entrepreneur is unsure whether they meet the conditions for VAT registration, they may file an application for registration as a precautionary measure, pay the tax, and subsequently challenge the registration itself. This is a practical way to avoid potential penalties.
The entrepreneur filed an application for VAT registration as a precautionary measure, as they believed that they might have exceeded the statutory turnover threshold. In response to the tax administrator’s request to remove doubts, they stated that in the fourth quarter of 2019, they provided a customer with commercially exploitable contacts on a one-time basis, with the consideration being paid in instalments over the years 2020 to 2023, as evidenced by 182 invoices. Based on these documents, the tax administrator decided to register the entrepreneur for VAT. The entrepreneur appealed, arguing that this was a one-time transaction and therefore could not be considered an economic activity carried out systematically for the purpose of generating regular income.
The SAC emphasised that a one-time provision of goods or services cannot, in and of itself, be considered an economic activity. The tax authority must examine the actual nature of the activity, not merely the regularity of the income. The key is to distinguish whether it was a one-time transaction, the price of which was paid in instalments, or an ongoing supply of goods or services.
The SAC further held that VAT registration must not be effected in a purely formal or automatic manner; rather, the tax authority is required to assess whether the statutory conditions for registration have actually been fulfilled, and duly address and resolve any inconsistency between the submission of the VAT registration application and the taxpayer’s assertion that the transaction constituted a single, one time supply.
According to the SAC, it cannot be concluded beyond a doubt that the entrepreneur provided regular services during the fourth calendar quarter of 2019, nor that the submitted invoices prove that partial services had been performed as of the dates of their issuance. The SAC therefore cancelled the registration decision and remanded the case for further proceedings, as the tax administrator had not conducted any relevant evidentiary proceedings, and thus the claim regarding the one-time nature of the supply had not been refuted.