A Czech company is challenging additional VAT assessments levied by tax authorities. The company argues the assessments are unfair because they include revenue from US corporations the company cooperated with.
- The tax authorities claim these US corporations and the Czech company formed a de facto society (an informal business group) due to shared management and resources.
- Czech law allows taxing such societies as a single entity, making the Czech company liable for VAT on all the combined revenue.
- The company argues this approach violates EU law, as they shouldn’t be taxed on the US corporations’ revenue.
- Tax authorities disagree, claiming their law is compliant with EU regulations.
Applicable European Union and National legislation
EU Law (Directive 2006/112/EC):
- Defines a taxable person as someone carrying out economic activity independently (Article 9).
- Allows member states to consider a group of financially linked persons as a single taxable person (Article 11).
Czech National Law:
Before July 1st, 2017:
- A “society” under the Civil Code had a special VAT regime.
- Partners were jointly liable for VAT from the society’s activities.
- Turnover calculation and registration rules differed from regular VAT payers.
- Societies couldn’t be part of a VAT group.
After July 1st, 2017:
- The special regime ended, aligning with the EU Directive.
- Each partner is now individually responsible for VAT purposes.
- The change aimed to make Czech VAT law compliant with the EU Directive.
Analysis of the question
- The Czech Supreme Administrative Court is analyzing a case where a company (complainant) argues that it shouldn’t be liable for VAT on transactions of other partners in the society.
- Czech law has a special provision that makes a designated partner (in this case, the complainant) liable for VAT payment for the entire society.
- The complainant argues that this is contradictory to the EU Directive 2006/112/EC, because according to the Directive, a taxable person should be the one who carries out the economic activity.
- The Court of Justice agrees with the complainant that based on EU law, other partners who directly dealt with customers should be considered taxable persons.
- The court also acknowledges that the Czech law cannot simply be applied in this situation.
The Czech Supreme Administrative Court submits the following question to the Court of Justice of the European Union for a preliminary ruling:
Is a situation in which, pursuant to special national value added tax arrangements for ‘societies’ (associations of persons that do not have legal personality), a ‘designated partner’ is liable for the payment of the VAT for the entire society, despite the fact that another partner had dealt with the end customer in relation to the supply of services, compatible with Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax, in particular with Article 9(1) and Article 193 of the Directive?
Does the compatibility of the situation with Directive 2006/112/EC depend on whether the other partner had overstepped the rules of representing the society and dealt in his, her or its own name with the end customer?
Source: curia.europa.eu
