Free of charge supplied services can not be documented with an invoice, no VAT deduction by the recipient

The provision of services subject to VAT, free of charge, cannot be documented with an invoice, and the recipient is not entitled to deduct VAT (judgment of the Supreme Administrative Court of 4 November 2021, ref. I FSK 1806/18).

The case concerned a taxpayer who was a limited partner in a limited partnership running a business in the field of providing services related to intellectual property rights. The partners of the limited partnership considered its dissolution. In such a case, the taxpayer would be entitled to a part of the limited partnership’s property including intangible assets, in particular rights to trademarks and other intellectual or industrial property rights. The limited partnership obtained an individual interpretation, according to which the transfer of intangible assets to the taxpayer in the above circumstances will constitute the provision of services free of charge, equal to the provision of services for consideration pursuant to Art. 8 sec. 2 point 2 of the VAT Act.

The taxpayer applied for an individual interpretation to determine whether the transfer of intangible assets to him as a result of the dissolution of the limited partnership should be documented by an invoice and whether he would be entitled to deduct input tax.

The Supreme Administrative Court agreed with the Court of first instance and the tax authority that, in the context of the provisions related to invoicing, sale should be understood as the provision of services for consideration, with the exception of a special free service recognized as such under the provision. Therefore, there are no grounds for a free service such as in the case at hand to be documented with an invoice. The Supreme Administrative Court noted that this was to prevent the recipient from deducting input tax, which had not incurred any burden by not paying VAT.

Source Deloitte