SAC refuses right to deduct VAT on acquisition of movable assets after business establishment purchase

The Supreme Administrative Court (SAC) rejected a cassation complaint filed by a taxpayer in a dispute concerning a refusal of the right to deduct VAT on an acquisition of movable assets followed by a purchase of a business establishment from the same supplier. The acquisition of assets by the taxpayer and the acquisition of a part of a business establishment constitute a complex business transaction that cannot be viewed as two separate supplies; it is necessary to look into the overall substance of the transaction.

In the present case (9 AFS 28/2021-43) a taxpayer was interested in doing business in leasing and renting construction equipment and related services. For this purpose, they first acquired movable assets from their supplier (namely vehicles and construction equipment). Having in mind that the acquired movable assets would be used for their business activities, they claimed a VAT deduction in their tax return. In a tax inspection, the tax administrator found that the set of assets acquired did not constitute a functional unit through which the taxpayer could fully carry out their business activity and that it was closely related to a subsequent acquisition of a part of a business establishment. An acquisition of a part of a business establishment is not subject to VAT, therefore, in the case in question, the deduction had not been justified. The tax administrator’s approach was confirmed by the Municipal Court in Prague. The taxpayer brought the matter before the SAC.

The SAC confirmed the position of the tax administrator and of the Municipal Court. The SAC emphasised that for the purposes of VAT, the functional character of the assets being acquired is not relevant, but the overall aim of the transaction is. Importantly, at the time of issuing the tax document for the acquisition of the movable assets, the contract for the transfer of a part of a business establishment had already been concluded. An acquisition of a part of a business establishment is not subject to VAT, and even though a tax document was issued including VAT when purchasing a part of a business establishment, the buyer did not have the right to deduct the tax. The fact that formally there were two contracts (a purchase agreement and an agreement on purchase of a part of a business establishment) was not relevant.
By concluding two contracts, a single transaction was artificially divided, which for VAT purposes must still be viewed as a sale of a part of a business establishment.

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