Draft amendment to the 2025 VAT Act

The amendment to the VAT Act, scheduled to take effect as of 1 January 2025, has been discussed and approved by the Chamber of Deputies and forwarded to the Senate of the Czech Republic. The Senate is expected to debate the amendment no earlier than 12 December 2024. Therefore, it is still more likely that the amendment will be published in the Collection of Laws by 31 December 2024.

Tax administration activities

The Coordination Committee of the GFD and KDP CR discussed a paper dealing with the VAT treatment of employee benefits provided by employers. The most important conclusion concerns benefits provided to employees for consideration and the determination of the amount of such consideration. The GFD rejected the general assumption that remuneration amounting to 10% of the costs incurred can always form the taxable amount of the benefit provided. Instead, the GFD argued that such remuneration may rather constitute a mere “fee” which does not accurately reflect the direct consideration for the benefit provided. As a result, it does not justify a tax deduction for the taxable supplies received in connection with the provision of the benefit. This is an important conclusion which may impact current practices in this area.

Supreme Administrative Court on the abuse of law

In its decision in case 9 Afs 51/2024-58, the Supreme Administrative Court (SAC) addressed the issue of the abuse of law, where the tax administration alleged that a related company had been artificially inserted into a business structure for the purpose of VAT savings. The tax administration’s claim was supported by several factors, including discrepancies in the timing of the contracts involved. However, the court rejected the tax administration’s interpretation and provided a practical analysis of the essence of the abuse of law concept.

Judgements of the CJEU

In case C-594/23 Lomoco Development, the CJEU considered the issue of the VAT exemption of the transfer of land on which foundations of a building intended for residential use are in place. The CJEU concluded that mere foundations of a building cannot serve as a residential building as they are not capable of being used for residential purposes by the owner or tenant. Consequently, foundations alone do not qualify as a “building” within the meaning of the VAT Directive. As a result, the CJEU concluded that the supply of such land constitutes the supply of building land, which is subject to VAT. In our view, this decision is unlikely to have significant practical implications.

Future VAT developments in the digitalisation and simplification of administrative processes

The legislative process concerning conceptual changes to the unified value-added tax (VAT) system is nearing completion. However, most proposed changes are expected to take effect significantly later than initially anticipated. Notably, the extension of the single administration point and the abolition of the rules on “warehouse supplies” are projected for implementation in 2028 or 2029. Similarly, changes affecting the business activities of internet platforms are expected within a comparable timeframe, while new procedures for issuing and reporting e-invoices are not set to take effect until 2030. Given these substantial delays, it is unlikely that these changes will prompt significant adjustments in practice in the near term.