Taxpayer (yet again) fails to bear burden of proof regarding advertising services

The Supreme Administrative Court (SAC) ruled against the taxpayer and dismissed a cassation complaint in a dispute concerning the refusal of the right to deduct VAT on received advertising services. In the SAC’s opinion, if the extent of the supply as declared in the tax documents is not supported, the right to deduct VAT cannot be exercised.

A taxpayer claimed VAT on purchased advertising services. The services were to include both illuminated advertising on banners and static advertising on rented advertising space. To prove that the services were indeed provided by the advertising supplier, the taxpayer submitted photographs of a light board displaying the name of the entity, their business and contact details. In addition, witness statements were taken indicating that several persons had actually seen the advertisement in question. 

According to the tax administrator, neither the submitted photographs nor the witness statements proved that the services took place at the time, place, and extent as ordered under the contract. For example, it was not clear from the photographs when exactly they were taken or where the banners were specifically located (missing time and date of taking the photograph or a picture of the surroundings of the billboard that would allow to identify its location). Moreover, the tax administrator was unable to determine from the witness testimonies who had actually provided the agreed advertising services. For these reasons, the tax administrator did not recognise the right to deduct VAT on the received invoices.

The SAC confirmed the conclusions of the tax administrator and of the regional court. The SAC pointed out that the subject of the dispute was not whether the taxpayer received "any" advertising services. It must be proven that the advertising services were provided in the extent in which the service was accounted for. This was not the case here, and so the substantive conditions for the right to deduct VAT, i.e. the performance of advertising services as declared in a formally perfect tax documents submitted, were not met.

The judgment follows the SAC's decision rejecting the tax deductibility of costs of advertising supplies for income tax purposes. It is therefore to be expected in the future that in cases where the provision of advertising services has been challenged for the purposes of income tax, tax administrators will also challenge the right to deduct VAT.


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