Amendment to the VAT Act – Medical Devices

In connection with the change in the methodology for determining the tax rate for the supply of medical devices, it can be assumed that some supplies of goods that have been so far subject to the 15% tax rate could be subject to a 21% tax rate from January 2022. With regard to the ambivalent wording of the VAT Act, the primary influence will be the position that the Tax Administration of the Czech Republic will take on the issue.

Exemption/waiver in relation to COVID-19

The exemption from customs duties/VAT on imports of goods distributed free of charge in the fight against COVID-19 (applied practically since the very beginning of the pandemic) has been extended for another six months until 30 June 2022. On the contrary, there was no further extension of the VAT waiver on the supply of respirators and filter masks. From January 2022, it is necessary to apply VAT on supply, acquisition from another member state or import of these goods.

Supplement to the Information of the General Financial Directorate on the billing of electricity and gas in relation to VAT remission

The General Financial Directorate has clarified that in the case of electricity and gas supply that is subject to both the reverse charge mechanism and the VAT remission by the decision of the Minister of Finance, the recipient is obliged to state the supply value not only on line 26 but also on line 51 in column “full entitlement to tax deduction”. This supplement should be taken into consideration by those who acted in accordance with the original wording of the Information.

Rules for applying VAT on tourist services

Starting from 1 January 2022, the rules for applying VAT on tourist services have changed (for example, the obligation to tax prepayments or the imposition of VAT on part of the transport to third parties). The General Financial Directorate issued Information commenting on the rules in more detail.

Coordination committees’ contributions

The coordination committee issued a contribution related to the right of superficies. Specifically, it has been concluded that compensation payment does not need to be subject to a one-off tax payment upon the provision of the right of superficies, but it is possible to tax it gradually as it is being paid. This principle does not directly follow from the VAT Act.

Another coordination committee’s contribution addressed a situation in which a manufacturer delivers pharmaceuticals to a distributor who then delivers them to healthcare facilities who are subsequently reimbursed for the pharmaceuticals by health insurance companies. It has been decided that subsequent indirect bonuses paid by the manufacturer to the health insurance company may be used to decrease the VAT paid by the manufacturer. This applies only in cases where no service provided by the health insurance company to the distributor can be identified.

Reduction of the right to deduct by a pro-rata coefficient

In its decision 4 Afs 130/2021-59 in the case of Český rozhlas, the Supreme Administrative Court (SAC) found it possible for the tax administrator to proceed from a publicly available report on the economic results of the taxable entity for the period in question in a situation where the taxable entity fails to provide the necessary data for determining the ratio between economic and non-economic activities. From the given data, the pro-rata coefficient can be determined on the basis of the value of state subsidies and the total revenues achieved. The SAC’s opinion fills a gap in the VAT Act, which does not describe such a procedure.

Judgements of the CJEU

• Unidentified supplier and right to deduct

In case C-154/20 Kemwater ProChemie s. r. o., the CJEU has taken the view that, if the actual supplier is not known and it is in no way possible to ascertain their tax status, the right to deduct must be refused. This applies without the tax administrator being obliged to prove the absence of good faith that the customer did not know and could not have known that they were involved in possible tax fraud.

• Purchase of expensive advertising services

In case C-334/20 Amper Metal, which concerned the tax on disproportionately high advertising, the CJEU described the rules for claiming a tax deduction. In principle, only an objective factual connection with the economic activity of the customer is important; on the contrary, the high price of advertising is not an obstacle. In the court’s opinion, it does not matter even that it did not have the desired influence on the customer’s sales.

• Form of invoice for VAT purposes

In case C‑156/20 Zipvit, the CJEU refused the right to deduct tax on a taxable supply if the supplier behaved as if it were an exempt supply. That decision may also affect the interpretation of the rules on the right to deduct in respect of transactions for which the recipient of the supply does not pay anything or pays only part of the price.

• Right to deduct and VAT registration

In its decision C-358/20 Promexor Trade, the CJEU stated that the right to deduct cannot be prevented simply because the taxable entity is not registered for VAT. According to the CJEU, registration cannot be prevented by the fact that a member of the applicant’s statutory body is a partner of another company against which insolvency proceedings are being conducted.