Czech Republic: Liability of supply recipient | KPMG | GLOBAL

Czech Republic: Liability of supply recipient for unpaid VAT

Czech Republic: Liability of supply recipient

The Supreme Administrative Court specified the conditions when the recipient of a supply is liable for value added tax (VAT) that is not paid by the supplier. The high court held that a payment to a foreign account cannot automatically give rise to liability.

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In this case, the regional court in Ostrava held that imposing liability for unpaid VAT on the recipient, when payment for the services was made to a foreign account, was contrary to EU law. The Supreme Administrative Court rejected the findings of the lower court, but provided more details as to what conditions of liability would be in conformity with EU law.

The high court observed that making a payment to a foreign account was legal and not unusual. Within the EU, these actions are protected by the concept of the free movement of capital. Foreign payments thus cannot be viewed as automatically establishing liability. Apart from the payment itself, the high court found that there must also be circumstance that the payer knew (or could have known) that the purpose of making the paying abroad was to avoid paying the tax. Under the Czech rules, the supplier remains the primary taxpayer, and the tax administration must show that there were attempts to collect the tax from the supplier (even if without success).

The Supreme Administrative Court concluded that the tax administration must prove that the conditions for liability have been met.  

 

Read a March 2018 report prepared by the KPMG member firm in the Czech Republic

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