SAC on proving VAT exempt supplies to another EU member state

In its recent judgment, the Supreme Administrative Court (SAC) dealt yet again with the case where the VAT exemption of a cross-border supply of goods was challenged by a tax administrator. Apart from the specific circumstances of the case, the court also commented on the significance of the customer’s (acquirer’s) written declaration pursuant to Section 64 (5) of the VAT Act, and the possibility of pleading good faith.

The SAC (8 Afs 179/2016 - 33) dealt with a situation where a tax administrator challenged the VAT exemption of a cross-border supply of mobile phones to Sweden. The invoicing took place through entities established in Sweden or Lithuania and the taxpayer did not have sufficient (suitable) evidence supporting the transaction. In the course of a tax inspection at the supplier, the tax administrator ascertained the facts of the case and reviewed them by means of an international request for information from foreign tax administrators. From the information thus obtained, the tax administrator ascertained that the customers’ books did not contain any records of any business transactions with the supplier, and that one of the customers had gone bankrupt. It was not confirmed that the companies had effected any sales of goods such as those that had been purportedly supplied to them by the supplier.

During the tax inspection the taxpayer then stated that the customer’s statutory representative had given him incorrect invoicing data upon the delivery of the goods, and submitted an authenticated declaration of the customer’s statutory representative stating the actual recipient of the goods. However, the tax administrator by means of a request for information ascertained that criminal proceedings were pending against the statutory representative in the EU for VAT fraud and smuggling.

In its ruling, the SAC referred to current case law stating that if a taxpayer proves the entitlement to VAT exemption by means of a written declaration pursuant to Section 64(5) of the VAT Act, yet if there are doubts as to the facts of the case, the taxpayer’s burden of proof also includes having to prove the existence of the conditions for such exemption. The taxpayer was requested to support the entitlement to claiming the VAT exemption. Subsequently, the supplier changed his assertions as to the facts of the case, and stated that he had handed over the goods to the customer’s carrier in Bohumín in the Czech Republic or in Poland, and that the delivery notes submitted had been confirmed by the driver upon delivery.

As expected, the SAC came to the same conclusions as the regional court: it stated that the supplier failed to take adequate measures to ensure that the transaction would not lead to an involvement in tax fraud. In fact, the court held that the taxpayer had been rather reckless to hand the goods over to the customer’s carrier without having checked the final destination of the goods, and whether they actually had been delivered there. According to the SAC, in circumstances where taxpayers are entirely passive and do not make any efforts to verify the information provided by the customer, they cannot plead good faith.   

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