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News 9/2017

AMENDMENT TO THE VAT ACT

On 1 July 2017, the long-awaited amendment to the VAT Act will come into effect. The government presented this draft amendment to deputies for discussion as early as July 2016. Below are some changes the amendment will introduce.

Unproven shortage

The current VAT Act does not provide for a VAT regime in the case of an unproven shortage. According to the settled administrative practice based on Supreme Administrative Court judgements, output VAT is paid.

According to the amendment, the payer is obliged to compensate for tax deduction. This procedure applies to the destruction, loss or theft of property that is not duly proven or confirmed. Compensation for VAT deduction shall be made in the tax period in which the payer became aware of the destruction, loss or theft of property.

At first sight, this appears to be a merely “cosmetic” change. However, a positive difference can be seen in the case of an unproven shortage of products whose valuation includes wage costs to which the compensation for VAT deduction does not apply.

Special regime for companies has been abolished

The current wording of the VAT Act includes a number of special provisions that govern companies (formerly associations without legal personality). If, for example, one of the shareholders (formerly members) becomes a VAT payer, all the remaining shareholders also become VAT payers on the same day.

The amendment has abolished all special provisions governing companies. Each shareholder of a company will thus be treated separately as regards VAT. As this is a relatively significant change, the amendment provides for a transition period until 31 December 2018 during which existing companies may act in accordance with the current wording of the VAT Act.

VAT and vouchers

Furthermore,  in line with case law at the Court of Justice of the EU, the amendment has clarified the VAT regime in cases where payments are accepted before the relevant services are rendered. This change applies, in particular, to vouchers, depending on whether they are designated for the acquisition of a specific performance known in advance or not.

If the performance is not predetermined, the amount of the payment accepted in connection with the sale of such a voucher is not liable to tax. VAT is applied only when the voucher is claimed. This is, for example, the case of gift vouchers in retail trade or mobile phone top-up vouchers.

Extension of the reverse-charge mechanism in the Czech Republic

It has been a trend in recent years to extend the Czech reverse-charge mechanism, where the obligation to declare VAT is shifted from the supplier to the customer even if goods are supplied or services are provided between two Czech taxpayers, the place of performance being in the Czech Republic.

The present amendment also continues this trend, implementing the Czech reverse-charge mechanism, for example, for the supply of agency workers who perform construction and assembly works, supply of immovable property at public auction or supply of goods after assigning the retention of title to the assignee.

Further changes

  • The institute of an unreliable person has been introduced to complement the existing institute of an unreliable payer. According to the explanatory memorandum this additional regulation should deal with situations in which unreliable payers deliberately cancel their VAT registrations, intending to re-register. In such a case, the VAT payer is declared to be an unreliable person immediately after the registration is cancelled.
  • In the case of children’s groups, VAT exemption has been introduced without VAT deductibility. However, children’s groups may only be run by a non-profit entity.
  • When services are provided on a long-term basis, the date of taxable supply must be 31 December of each calendar year at the latest. The provision will not apply to lease-related services.