SAC: The objective of business is not an unlimited gathering of evidence for tax proceedings

In a recent judgment, the Supreme Administrative Court (“SAC”) heard a case proving the right to deduct VAT on purchased cleaning services and guarding. Beyond the unreviewability of the Regional Court’s judgment, the SAC also commented on the objective of the business and what burden of proof may be imposed on businesspersons in this respect.

In the heard dispute, the taxable entity proposed to the tax administrator an evidence portfolio, including testimonies of persons supposed to have supported his right to deduct VAT on services received. However, the tax administrator found the evidence unconvincing and considered the testimonies insufficiently specific to prove the taxable entity’s statements. The Regional Court confined itself to affirmative comments in favour of the tax administrator’s conclusions.

The SAC decided that the judgment was unreviewable as the Regional Court did not explain in detail why it identified with the tax administrator. Specifically, the SAC also stated that the Regional Court should have dealt with the content of the testimonies taken and the proposal for additional evidence, which the tax authorities had not performed, and it should have explained why it was necessary to prove the identity of specific natural persons who actually performed the trivial services.

Beyond these matters, the SAC also remarked that it is not possible to state in a generalised way that businesspersons should have the obligation to procure an unspecified amount of evidence so that they meet the requirements of tax authorities, as the main purpose of business is to achieve a profit, not to gather documents and contacts for the purposes of potential tax proceedings in the future.

Even though the final statements of the SAC have led to many positive comments from the public and it poses a favourable signal in the area of evidence, tax entities can still be advised to preventively keep sufficient evidence for potential tax disputes.

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