SAC: proof of tax fraud not sufficient to deny entitlement to VAT deduction

Yet again, the Supreme Administrative Court (SAC) has dealt with a VAT fraud issue, in particular debating under what circumstances it may be concluded that a taxable supply recipient was or should and could have been aware of their involvement in the fraud, and therefore should be denied their entitlement to deduct VAT.

In the case in question, a company purchased advertising services at golf tournaments and space for advertising spots on LCD TVs in Prague. The services were provided by a company whose statutory representative was subsequently deprived of his legal capacity. The company’s activity was arranged by a lawyer based on a power of attorney granted to him by the statutory representative (at that time still in full legal capacity), and by an employee who was assigned tasks by the lawyer. The evidence submitted showed that the supplies had been provided as per the contract, which even the tax administrator did not challenge.

After the statutory representative was incapacitated, the tax administrator found out that the signature of the VAT registration and VAT returns filed had been forged, and hence cancelled all tax assessments as well as the company’s registration for VAT. On grounds of the supplier’s cancelled VAT registration, the tax administrator then initiated a tax inspection at the recipient of the advertising services.

According to the tax administrator, the service recipient should have deduced that they were involved in a tax fraud from the following clues:

  • The signature on the contract did not check against the signature on documents filed in the Collection of Deeds.
  • The company’s registered office was a virtual address.
  • Cooperation was initiated through personal contact with an employee, but there was never any contact with the statutory representative.
  • Contracts were presented by the supplier already signed, with a pre-printed date.

According to the court, as far as VAT fraud is concerned, it is not relevant whether the legal acts taken by the statutory representative were invalid or whether the signature was indeed forged. What is decisive is whether the involvement of a person thus limited in their legal capacity constituted an instance of VAT fraud of which the supply recipient was or could have been aware.

The SAC did not agree with the tax administrator’s conclusions and held that the above facts did not indicate VAT fraud. According to the court, a virtual registered office and cooperation initiated through employees are common business practice; while on the other hand, having to check signatures against the Collection of Deeds is a rather non-standard requirement by the tax administrator.

Sdílet článek