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17 January 2018

SAC: VAT cannot be levied twice on the same transaction

The Supreme Administrative Court (SAC) granted many VAT payers’ Christmas wishes by its favourable ruling regarding the fight against tax fraud. In the FAU case, attracting considerable media attention, the court said no to the concurrence of liability for VAT and denying the entitlement to VAT deduction. In the SAC’s opinion, the tax cannot be levied twice on the same transaction.

Viktor Dušek
Jana Fuksová

According to the financial administration, it is possible to combine a supply recipient’s liability for VAT (if not paid by the supplier) with denying them the entitlement to deduct VAT, thus collect VAT twice on the same transaction. In the case in question, the tax administrator first requested that taxpayer pay VAT for the supplier on the grounds of their liability (for unpaid VAT). A year later, the tax administrator issued securing orders for a tax not yet assessed equalling the denied entitlement for VAT deduction reasoning that the taxpayer could have known that the supply they received had been affected by VAT fraud. In some cases, the tax clearly concerned identical transactions. 

The SAC agreed with the taxpayer and with the Regional Court in Ostrava and said no to the described approach. It unambiguously confirmed that it is not possible to issue an order to secure tax if another enforceable decision already exists regarding the same tax – in this case the request to pay the tax under the liability concept. At a more general level, the judges held that taxpayers cannot be forced to pay VAT twice, once on the grounds of being liable for the unpaid VAT, and again as a result of being denied the entitlement to deduct input VAT. The SAC emphasised that the tools for fighting tax fraud cannot be used for the enrichment of the state budget and multiple collection of tax by collecting the same tax repeatedly from individual links of the chain. Finally, the SAC noted that the tax administrator’s approach must be rational, responsible and must respect the rights and protected interest of taxpayers.

Let’s just hope that the tax authorities will indeed take a more rational approach to fighting tax fraud in the upcoming year, rather than assuming that “you have to break an egg to make an omelette”, an attitude that was criticised by the Constitutional Court before the holidays. Another harbinger of a more positive trend may be the decision of the Regional Court in Ostrava confirming that requests to pay tax under the liability concept have preference over denying the entitlement to VAT deduction. We expect the SAC to rule on this issue sometime in 2018.

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