Activities of the tax administration

Recently, a decree of the Ministry of Finance was finally approved and published, which regulates the ‎method of calculating the floor area in connection with the amendment to the VAT Act, which brings ‎changes in the area of real estate from 1 July. The Decree defines terms such as room, space and attic ‎and sets out the methodology for calculating the floor area of a building, its part, room and space, which ‎is a necessary condition for the correct procedure under the VAT Act. ‎

The General Financial Directorate (GFD) has published draft information on the interpretation of the ‎new provision of Section 74b of the VAT Act effective from 1 January 2025, which imposes the obligation ‎to correct the right to deduct tax on liabilities after a certain period of time after maturity. The key point ‎is the confirmation of the previously announced interpretations of this provision, i.e. that the obligation ‎to reduce the claimed deduction does not apply to received taxable supplies subject to the domestic ‎and cross-border reverse charge regime. The information also describes the method of reporting in the ‎tax return and control report for monthly and quarterly payers and addresses specific situations such as ‎receivables with split maturity, mutual set-off, assigned receivables, different tax rates for received ‎taxable supplies, reduced and proportional tax deduction entitlement and procedure for business ‎assets of newly registered payers. The draft information is currently in the comment procedure, so it is ‎possible that modifications will be made to the final version.‎

Case law of the Supreme Administrative Court ‎

In the SAC’s decision in case 7 Afs 317/2024-23, the subject of the dispute was whether the tax ‎administrator had rightly assessed a fine of CZK 50,000 in a case where the taxpayer was not obliged to ‎file the VAT ledger statement within the stipulated (statutory) deadline and did not submit it even on the ‎basis of the tax administrator’s request within the substitute 5-day period. According to the SAC, it is ‎not possible to fine an entity for simply failing to respond to the tax administrator’s call to file a ‎subsequent VAT ledger statement under Section 101g(1) of the VAT Act, which stipulates the reporting ‎obligation. In this case, in order to impose a fine, it was also necessary for the taxpayer to have a ‎primary obligation to file the CR within the stipulated deadline without a call. This judgment may be very ‎significant, but only for the period before 1 January 2025. The amendment to the VAT Act now allows for ‎the imposition of a sanction even if the only defective procedure of the taxpayer is the fact that it does ‎not respond to the call to file the CR. ‎

In case 8 Afs 113/2024-60, the SAC ruled on the right to deduct tax on the costs of promoting the logo ‎used to mark the petrol station. The advertiser/recipient of the advertisement did not operate the fuel ‎station itself, but leased it to another operator. The advertiser promoted this logo on advertising spaces ‎on car bodies. The SAC pointed out that in order to claim a VAT deduction, it is necessary that there is a ‎direct and immediate link between the supply received and the output of the economic activity, and the ‎price of the input must be reflected in the price of the outputs. In the case at hand, the court found that ‎the costs of promoting the logo were not an element co-determining the price of the lease – the ‎contractual relationships were not aligned in terms of time and substance in such a way as to prove this ‎link. The SAC therefore stated that the advertisement could not be considered part of the economic ‎activity of its recipient and thus did not have the right to deduct VAT. This judgment significantly clarifies ‎the interpretation of the direct and immediate connection, which may affect the current approach of ‎courts or the tax administrator to assessing the right to deduct VAT, and at the same time places higher ‎demands on entrepreneurs in the area of thorough linking of costs with the pricing of outputs.‎

CJEU case law

• In case C234/24 Brose, the Advocate General delivered an opinion on the question of the taxability of ‎resales of moulds of production used in the manufacture of goods. The case concerned a Bulgarian ‎company that produced a mould and subsequently produced products on it that it sold intra-Community ‎to a Slovak customer (the supply of these products was exempt). During production, the mold was first ‎sold to a German company, which then sold it to the aforementioned Slovak customer. The mold has ‎always remained physically in Bulgaria, so Bulgarian VAT was applied to its sale. A Slovak company has ‎applied for a VAT refund in Bulgaria. However, this request was rejected by the local tax administrator ‎because, in its opinion, VAT should not have been charged. The Advocate General stated that the mould ‎had been supplied because the Bulgarian company did not have it and did not bear the risk of its ‎destruction. At the same time, it should not be a secondary performance to the exempt sale of ‎products. Therefore, the supply of the mould was rightly subject to Bulgarian VAT. In addition, the ‎Advocate General added that even if the sale of the mould constituted ancillary supply to the products ‎supplied, it would still have to be taxed because the mould had not been transported to another Member ‎State. In our opinion, the Advocate General’s interpretation is very controversial.‎
• In case C-232/24 Kosmiro, the Advocate General delivered an opinion on the taxability of factoring ‎services provided by Kosmiro. Specifically, it was common factoring (purchase of receivables before ‎maturity) and collateral-based financing (loan secured by a receivable). For its services, Kosmiro ‎received a flat set-up fee and a financing fee. The Advocate General stated that both services are for ‎consideration and fall within the concept of debt recovery under the VAT Directive. Although financing is ‎part of factoring, the main goal of the services is to help with debt recovery, not to obtain financing. For ‎that reason, the Advocate General considers that Kosmiro should pay VAT on all charges. The Advocate ‎General’s opinion differs in some respects from the previous case-law of the CJEU, which could have ‎been interpreted differently. The CJEU’s conclusion on this matter will be an important guide for the ‎approach in practice.‎
• In case C-433/24 Galerie Karsten Greve, the Advocate General delivered an opinion on the conditions ‎of the special regime for art dealers. The case dealt with the question of whether the author of a work of ‎art can be considered a legal entity through which the author (natural person) who made the work sells ‎his works. The Advocate General stated that the work must be created by a natural person manually and ‎without mechanical procedures, but the delivery of the work may also take place through a legal person ‎if the author has decisive powers in that legal person and if the income from the sale constitutes, ‎directly or indirectly, a substantial part of his assets. If the CJEU adopts the arguments of this opinion, it ‎may shape the interpretation of the current rules even in other areas of VAT.‎