Czech Republic: Burden of proof, taxable and VAT-exempt services

The Supreme Administrative Court also addressed the treatment of acquisitions of turn-key tangible fixed assets.

Taxable and VAT-exempt services

The Supreme Administrative Court—in a case involving a hospital that provides both taxable health services and services exempted from value added tax (VAT) without the right to deduct—held that the taxpayer has the burden of proving which supplies are VAT-exempt and which are taxable.

The court also addressed the treatment of acquisitions of turn-key tangible fixed assets, and departed from the position of the General Financial Directorate (GFD).

The case identifying information is: 2 Afs 232/2020-70


The hospital mainly provides health services that are exempt from VAT without the right to deduct, but also provides some taxable supplies subject to output VAT. The hospital deducted VAT in a reduced amount in relation to the individual hospital centers that generated both VAT-exempt and taxable supplies.

The tax administrator rejected the right to deduct VAT for medical supplies, movable property, and other operational costs on the grounds that the hospital failed to prove a direct link between these purchases and specific taxable outputs (that is, it was asserted that the hospital failed to prove that the costs were not used solely for supplies exempt from VAT without the right to deduct).

The hospital argued that it was not technically possible to determine which supplies were used for VAT-exempt supplies and those used for taxable services (e.g., with regard to a pack of needles, which particular needle was used for VAT-exempt supplies and which one for taxable supplies).

The Supreme Administrative Court confirmed that the burden of proof as to the right to deduct rests with the taxpayer. 

The judgment also addressed the acquisition of turn-key fixed assets and departed from the government’s position that assets that have been built or created for a taxpayer by another entity when the taxpayer was not involved in their creation (for instance, a turn-key construction by one supplier) cannot be considered internally produced by the taxpayer. The court concluded that acquired turn-key tangible fixed assets may be considered having been internally produced.

Read an October 2021 report prepared by the KPMG member firm in the Czech Republic


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