Amendments to the VAT Act

In late January, the Financial Administration released information about the application of the deduction limit on M1 passenger cars, effective from 1 January 2024. While not addressing several contentious questions, it clarified the impact of the deduction limit on cars leased under finance leases. For these leases, the limit should only apply to the lessee, not the lessor. The information also confirms that, despite a taxpayer’s inability to claim a full deduction, the subsequent sale of the car is still subject to VAT as usual.

The Ministry of Finance has unveiled the first draft of an amendment to the VAT Act, which should be effective from 1 January 2025. This amendment proposes a complete overhaul of the rules for registering taxable persons as taxpayers, introducing an additional limit of EUR 100,000 to be added to the current limit of CZK 2 million. Furthermore, it aims to significantly alter the method for determining the time limit for tax base corrections, extending it to seven years. In terms of bad debts, the VAT Act will address entirely new scenarios where VAT will be refunded to the creditor; for instance, the amendment suggests a provision for tax base reduction adjustments for minor debts up to CZK 10,000. Regarding the right to deduct tax, the time limit for its application is proposed to be shortened to roughly two years. If payment is not made within 6 months from the due date, the debtor would automatically forfeit the right to deduct the tax, albeit with the option to reclaim it upon payment. The amendment is currently open for comments and is expected to undergo significant modifications.

Judgements of the CJEU

• In Case C 537/22 Global Ink Trade, the Court of Justice ruled on the eligibility for a deduction claim in instances where the supplier’s true identity was uncertain, and the named supplier had not met his tax obligations. The Court determined that for a disputed deduction to be claimed, the purchaser must have exercised due diligence. This means taking all reasonable precautions and, when tax evasion is suspected, applying additional vigilance. In our view, this ruling marks a notable shift from the Court of Justice’s recent decisions regarding the right to deduct tax.
• In Case C-442/22 P sp. z o.o., the Court of Justice considered who bears the responsibility for the VAT on a fraudulently issued false invoice, created by an employee without the company’s awareness. The Court concluded that the employer could be held accountable if it did not exercise the necessary diligence in supervising the employee’s actions. This decision is potentially significant in practice.