What is new in the world of VAT? In its judgement, the Court of Justice of the European Union (CJEU) did not recognise the right to deduct tax assessed from the import of goods, if the importer has no right to handle the goods as its owner. Other measures relating to VAT were adopted in the Czech Republic in the context of the coronavirus pandemic. Read the current VAT news to learn more.
VAT measures – COVID-19
Other measures regarding VAT have been adopted in relation to the fight against the coronavirus pandemic. The possibility to exempt imports of goods acquired for fighting against the coronavirus pandemic from tax has been extended, specifically to 30 April 2021. An important measure that is supposed to alleviate the situation for VAT payers is the possibility to settle VAT arrears that arose between 1 October 2020 and 31 December 2020 until the end of 2020, without the necessity to pay default interest.
Information from the General Financial Directorate on the amendment to the VAT Act effective from
1 September 2020
The General Financial Directorate published information describing most of the changes made in the VAT Act as of 1 September 2020. VAT payers therefore received a necessary description of the new rules applicable to international trade in goods. One of the key aspects of the information is the obvious effort of the GFD to accept the information on the relevant matter contained in the Explanatory Notes of the EU Commission issued at the end of last year.
Coordination Committee – correction of tax in bad receivables arising from compensations in early termination of lease contracts
At the meeting of the Coordination Committee, a contribution between the General Financial Directorate and the Czech Chamber of Tax Advisors was discussed and concluded; it was agreed that a correction of tax in bad receivables arising from compensations in early termination of contracts (namely lease contracts) is possible. The original opinion of the General Financial Directorate stating that such correction is not permissible in principle was thus overruled. At the same time, the General Financial Directorate insists that the required amount of compensation is a standalone performance with the date of taxable supply being the date when the contract was terminated, without taking into account that the required compensation is mostly, in respect of lease contracts, reduced by the proceeds from the sale of the seized leased asset.
Coordination Committee ̶ utilisation of VAT in compensation for unused material
During the meeting of the Coordination Committee, a new contribution was submitted addressing the specific features of the contractual obligation of a supplier of goods to stock up on raw materials for the production of goods, stating that if the customer does not purchase the products as expected, they have to compensate the supplier for the value of raw materials (decreased by potential proceeds from their sale). The discussed solutions have so far been ranging very broadly: the compensation is outside the scope of VAT / it is a taxable payment for an individual service / it is a payment included in the tax base for the sale of products or sale of raw materials.
In its judgment, the CJEU did not recognise the right to deduct tax assessed from the import of goods, if the importer has no right to handle the goods as its owner and if the import costs are not included in the price of the importer’s specific performance or, in general, in the price of its products. For this reason, it is impossible to apply the existing standard approach that has been applied in practice when the payer providing works on the goods was determined as the importer of the goods, paid relevant VAT from its custom value, and claimed the right to its deduction. We see the ruling of the CJEU as absolutely crucial.
In this case, the Advocate General of the CJEU generally commented on the concept of the rule of the actual consumption of services that were provided by a company from a third country to end consumers who also reside in the third country. In the opinion of the Advocate General, we see a certain shift in opinion as compared to the previous judgments of the CJEU, which could have an impact on procedures in line with the VAT Act (the rule of actual consumption was partially implemented in the VAT Act in respect of B2B services).
This judgment clearly confirms the incorrectness of the rules for the correction of tax in bad receivables under Section 46 of the VAT Act. In its judgment, among other things, the CJEU considers the condition that a debtor must be registered for VAT at the moment of providing the original performance to be illegitimate as it does not comply with the rules defined by the EU Directive on VAT. However, such condition can actually be found in the VAT Act.
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