What can you read about in the June VAT news? The Czech Republic submitted a proposal to the EU Council to apply a reduced VAT to the supply of environmentally friendly products. The Supreme Administrative Court has ruled that a person exempt from applying the tax cannot issue tax documents. The CJEU addressed the possibility of applying a special VAT regime to the sale of cars for spare parts and the right to deduct tax on supplies deemed invalid.
Reduced VAT rate on environmentally friendly products
The Czech Republic presented a proposal to the EU Environment Council to apply a reduced VAT rate to the supply of environmentally friendly goods. Currently, the European VAT Directive does not allow this option. Although it cannot be ruled out that subsequent negotiations on this topic will be initiated at the European level and that the VAT Directive will eventually be amended, we consider this rather unlikely. It is because the above-mentioned requirement simultaneously contradicts the concept of the CJEU on the system of VAT rates.
Issuance of documents by non-payers
According to the opinion of the Supreme Administrative Court, expressed in its decision 2 Afs 297/2022-36, a person exempted from the application of tax may in no case issue tax documents as per the VAT Act. It is therefore not possible to apply the fiction of the performance of a taxable supply by issuing such a document. We view this position as partly contrary to the wording of the VAT Act.
Judgements of the CJEU
- Delivery of cars for spare parts
In Case C-365/22 IT, the Court of Justice of the EU (CJEU) addressed the possibility of applying the special regime for second-hand products to the sale of cars for spare parts that have been scrapped after being permanently destroyed. It held that although this possibility is not explicitly mentioned in the text of the European VAT Directive, there is nothing to preclude it from being allowed. We do not consider this view to be contrary to the practice in the Czech Republic.
- Invalidity of legal transaction and effect on the right to deduct tax
The CJEU’s decision in Case C-114/22 W. Sp. z o. o. concerns the right to deduct tax on supplies deemed invalid under national civil law. According to the CJEU, invalidity alone does not preclude the possibility of claiming a deduction. However, if the supply is entirely fictitious, the claim does not, naturally, arise. Similarly, if the transaction is part of a fraudulent or abusive transaction, the claim does not arise unless the purchaser has a good faith belief that they are not involved in the fraud/abuse.