SAC on proving VAT exemption for supplies of goods to the EU

The Supreme Administrative Court (SAC) dealt with a situation (4 Afs 115/2021-45) in which the tax administrator assessed an additional output tax to a company (a Czech VAT payer) for supplies of rapeseed oil to another EU member state, namely Poland. The subject-matter of the dispute was not proving that rapeseed oil had actually been delivered from the Czech Republic to the neighbouring state, but the fact that the company did not bear the burden of proof in identifying its Polish customers. The company had provided the tax authority with CMR notes, customers’ certificates of delivery and acceptance of goods, weighing notes, affidavits from the carriers, etc. However, according to the tax authority, the documents did not contain all the necessary information (e.g., the person taking over the goods, signatures, and dates).

The SAC referred to a recent judgment (C-154/20 Kemwater ProChemie) of the Court of Justice of the EU (CJEU) dealing with the denial of a VAT deduction where the actual supplier had not been identified. The CJEU pointed out that one of the conditions to claim the right to deduct VAT is that the supply recipient must prove, based on objective evidence, that the supplier acted in the capacity of a taxable person. To deny the claim on the ground that the actual supplier was not identified but is a taxable person would be contrary to the EU principle of tax neutrality.

The SAC followed a similar logic in the case of the Czech supplier of rapeseed oil: if the company supplied rapeseed oil to a customer other than the one identified in the EC Sales List, it cannot be denied the right to deduct VAT if it proves that the customer is a taxable person. If the tax authority denied the taxpayer’s right nonetheless, this would constitute a breach of tax neutrality that is a fundamental prerequisite for the operation of the VAT system, the court held.

The SAC pointed out that by submitting weighing notes, the company had proven the delivery of rapeseed oil to refineries in Poland in excess of tens of tonnes, which means that the receipt of such quantities of oil could only have been carried out by a customer liable to tax. However, the tax authority had not examined this fact. The SAC therefore concluded that at that stage, not all relevant facts had been established to deny the company its right to deduct VAT. The company will therefore have to provide evidence again. However, the judgment suggests that the incorrect identification of an EU customer does not necessarily mean that the VAT exemption should be denied.