The court considered the documents, together with the company's explanations, sufficient to support its right to deduct VAT on the supplies.
The Supreme Administrative Court held that the taxpayer sufficiently proved its right to deduct value added tax (VAT) on supplies of assembly work, particularly considering the time elapsed between the supply and the subsequent tax inspection.
A company engaged in the production of building accessories (steel stairs and railings) supplied its products to German customers. The company carried out the production using its own employees, but occasionally, for larger orders, also used an external supplier. The supplier’s employees then carried out the work at the company's production facilities. During a tax inspection initiated in June 2017, the tax administrator assessed additional VAT on the taxable supplies (assembly work) received from this supplier for tax years 2015 and 2016, on the grounds that the company failed to prove that they had received the assembly work in the declared scope and at the declared price.
The company provided a range of evidence to prove the delivery of the assembly work, including documentary evidence (e.g., tax documents/invoices, purchase orders, contracts for work, handover protocols, underlying documents for billing that contained the link between the work carried out and the company's specific orders, and lease agreements) and witness evidence (testimony of a company employee on the presence of the supplier's employees on the company's premises and on the performance of the assembly work).
In its own investigation, the tax administration verified that the transactions had been declared in the supplier's VAT ledger statements, that VAT had been paid on the transactions in due and timely manner, that the payments had been made to the published bank accounts, that the turnover had been reported by the supplier in the financial statements filed in the collection of deed of the commercial register, and that the supplier had been registered in the register of employers. Nevertheless, the tax administrator found the evidence submitted by the company insufficient and considered it to be merely formal and not proving the actual scope and object of the supplies.
The court admitted some of the tax administrator’s doubts regarding the supplies as justified (e.g., non-standard price arrangements between the company and the supplier and the supplier and its subcontractors not being fully available during the tax inspection. Nevertheless, the court considered the documents, together with the company's explanations, sufficient to support its right to deduct VAT on the supplies.
Read an August 2024 report prepared by the KPMG member firm in the Czech Republic