Both rulings of the SAC may be considered significant in terms of tax administration as well as positive for taxable entities. These rulings serve as a certain confirmation for taxable entities that bringing cases before the court does not have to be a losing game.

The first ruling (ruling of the SAC no. 5 Afs 60/2017 – 60) was issued in a case in which a company was denied a VAT deduction by the tax administrator due to the company’s alleged involvement in a fraudulent scheme. The SAC subsequently cancelled the judgment of the court and the Appellate financial directorate’s ruling because it was not clearly demonstrated that the company knew or could have known about its involvement in VAT fraud. The SAC predominantly criticised the purposive assessment of evidence when both administrative authorities emphasised the evidence counting against the company while disregarding the evidence that was to the company’s benefit.

The SAC believes that it is always solely the tax administrator’s responsibility to demonstrate that the taxable entity knew or could have known about the fraudulent practices concerned. The burden of proof thus cannot be transferred to the taxable entity, nor is it possible to extend incommensurately the requirement for examining the business partners’ credibility as indicated by the judgments of the Court of Justice of the European Union and to place inadequate requirements on taxable entities.

The SAC also emphasised that taxable entities are unable to examine all potential sub-suppliers involved in a business transaction and thus it is impossible to automatically count against the taxable entity the fraudulent practices of entities other than direct business partners as this would establish liability without fault. On the other hand, the SAC gave a reminder of the rule that the taxable entity should be cautious when suppliers, subject of performance, price or other circumstances raise doubts as to the transaction credibility.

The other ruling (ruling of the SAC no. 5 Afs 78/2017 – 33) relates to the statutory duty to guarantee VAT not paid by the supplier. In the legal dispute in question, the company was invited by the tax administrator to settle as a guarantor the VAT underpayment arising from a debt that was unsuccessfully collected from the supplier as part of enforcement of a judgment by a licensed enforcement agent. The tax administrator believes that a guarantee obligation was established as the respective performance was paid by a VAT payer in a cashless transfer to the supplier’s account maintained abroad (Slovakia).

Nevertheless, the Regional Court cancelled the tax administrator’s decision and this was further confirmed by the SAC. The SAC stated that the tax administrator must bear the burden of proof, demonstrating that the taxable entity knew or could have known about the supplier’s intention not to pay VAT. Furthermore, the SAC opines that as such, a cashless payment to a foreign bank account cannot establish a guarantee for the actions of another taxable entity that has failed to pay VAT.

Besides, the SAC opines that cross-border payments are not unusual in business relations, complying with the principle of the free movement of capital in the European Economic Area. Nevertheless, the SAC did not agree with the Regional Court’s opinion that the legal title of guarantee is contrary to the law of the European Union.