Comments on ECJ C-796/23: Consideration of Czech company for VAT purposes as ‘designated partner’ in violation of EU law

The CJEU ruled that Czech legislation violating Articles 9 and 193 of the VAT Directive by imposing VAT on a designated partner for services provided by other partners acting independently is incompatible with EU law.
Česká síť, classified as a designated partner in a civil-law company, was incorrectly held liable for VAT on the entire turnover generated by US branches, which operated independently in their own names and with their own contracts.
The court emphasized that the status of a taxpayer is determined by the independent execution of economic activities, and the existence of a partnership agreement does not alter the individual partners’ responsibilities under VAT law.

The case involved four closely linked Czech companies operating below individual VAT thresholds but exceeding it collectively, prompting tax authorities to treat them as a civil law partnership for VAT.
The Court addressed whether a designated partner of such a partnership could be liable for VAT on services, even if individual partners acted independently and contracted with clients in their own names.
The ECJ ruled that if individual companies act independently, provide services in their own name, record their own income, and are identified as the contracting party by third parties, then those individual companies, not the non-legal-personality civil law partnership, are the proper VAT taxpayers.

Background: Česká síť, a Czech limited liability company, was assessed by tax authorities as the “designated partner” liable for VAT on behalf of US corporations operating in the Czech Republic through branch offices.
Court’s Ruling: The Court ruled that the designated partner (Česká síť) should not be liable for VAT on supplies made by the branch offices, which are considered independent entities conducting their own economic activities. The domestic law imposing such liability was deemed incompatible with EU VAT law.
Conclusion: The ruling confirmed that the VAT burden cannot be placed on the designated partner merely due to its status, as liability should reside with those entities independently carrying out the taxable activities.

Source KPMG

The Court of Justice of the European Union ruled that classifying Česká sít and its three branches as a ‘civil company’ by the Czech Republic is contrary to EU law, as this classification does not align with the legal requirements for VAT liability.
Česká sít was incorrectly designated as the ‘appointed partner’ responsible for VAT on behalf of the entire company, despite the other partners also providing taxable services, which should be considered in determining VAT obligations.
The ruling emphasized that deviations from civil law rules regarding representation by the other partners do not affect the application of VAT, reinforcing the legal distinctions necessary for VAT liability assessment.

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