SAC: Czech VAT regulation contrary to EU directive
The Ministry of Finance is preparing an amendment to the provision regulating the tax exemption of exports. The amendment will remove the precondition that goods must have been released to a relevant customs regime. Nonetheless, remaining unclear is the ministry’s response to recent case law concerning the correction of tax bases for unrecoverable debts, where Czech legislation evidently contradicts EU directives.
In the first of two recent cases before the Supreme Administrative Court (8 Afs 252/2016), a taxpayer was dispatching goods outside the European Union. Believing that the delivery was tax-exempt as the export of goods, they paid no VAT on the transactions. This was challenged by the tax administrator: in their opinion, one of the preconditions for applying the exemption had not been met as the goods had not been released into a customs regime as stipulated by law. It did not suffice that the taxpayer produced evidence that the goods were actually dispatched to a third country. The tax administrator ruled that the cumulative preconditions for the tax exemption had not been met.
Based on this case, the SAC referred a prejudicial question to the Court of Justice of the EU whether the national VAT legislation was in accordance with EU law. According to the CJEU’s decision, the entitlement for tax exemption cannot be conditional upon releasing the goods into a certain customs regime, but instead it suffices that the taxpayer proves that the goods were actually delivered to a third country.
The second judgment (10 Afs 71/2016) concerned A-PACK CZ. In this case as well, the SAC ruled in favour of the taxpayer. In accordance with the CJEU judgment, it confirmed that a VAT payer may correct a tax base if the debtor fails to pay, fully or in part, a disputable amount, even though the debtor has ceased to be a VAT payer.
In response to the first case mentioned, an amendment to the VAT Act now being prepared and to enter into effect on 1 January 2020 will remove the precondition of the goods being released into a customs regime, and will include the possibility to prove entitlement to tax exemption upon export by evidence other than a customs declaration. As for the second case, it is not yet clear what approach Czech legislators will take, although legislation is undoubtedly contrary to the EU directive.