Application of value added tax under the simplified procedure for triangular trade

In the judgment 7 Afs 197/2022 of the Supreme Administrative Court ("SAC"), it was examined whether it is possible to retroactively apply the simplified procedure for intra-EU supplies of goods in the form of triangular trade. The case concerns a company involved in a dispute with the tax authorities over the rejection of its claim for a value added tax (VAT) deduction. The entire dispute focuses on several issues relating to the application of VAT procedures and the burden of proof for intra-EU transactions.

The complainant claimed an excessive VAT deduction for August 2016, which was subsequently rejected by the tax authorities. In this case, the complainant provided her Czech VAT number when purchasing goods from other EU Member States, declared VAT and claimed a deduction for that tax. In view of the fact that the transport of the goods was not completed in the Czech Republic, the tax administrator rejected her claim for VAT deduction in accordance with Article 11(2) of the VAT Act.

The complainant subsequently argued that their transaction should be considered a three-party transaction, which would allow the simplified procedure under section 17 of the VAT Act to be applied. However, the Court found that the company did not meet the necessary conditions for this classification, as the documents did not indicate that it was a three-party transaction. Moreover, if the simplified procedure had been used, the company concerned would not have been obliged to declare VAT in the Czech Republic at all on the acquisition of goods from another Member State.

Where an intermediary in a triangular transaction issues an invoice to the final customer which does not state that it is a triangular transaction, he is deemed to be liable to pay tax in the State which has assigned him the VAT number which was subsequently supplied for the purposes of the acquisition of the goods by his supplier.

The SAC further referred to the judgment of the CJEU in Facet: C-247/21 Luxury Trust Automobile, which highlights the conditions under which the derogating regime for triangular transactions may apply. It was in this judgment that it was explicitly stated that in order to satisfy the condition for deduction of VAT, it is necessary to state on the tax invoice "the customer pays the tax". In the absence of proof of the use of the triangular transaction scheme, VAT is to be determined according to the State which issued the VAT number to the purchaser of the goods. As the applicant in the present case law did not prove this fact, the Supreme Administrative Court upheld the conclusion of the tax administrator and the municipal court that they had correctly determined the VAT under Article 11(2) of the VAT Act for which the payer was not entitled to deduct.

Impact on VAT practice

The judgment highlights the importance of proper documentation of cross-border transactions within the EU, especially where multiple companies are involved. Incorrect reporting and the maintenance of incomplete documentary evidence can lead to VAT evasion. The formalities of tax documents are therefore key information that both the SAC and the CJEU link to the right to claim a deduction.

If you are unsure of the correctness in any case, please contact our tax team and we will be happy to advise you on the issue.