New developments in VAT – reverse charge mechanism extended and other recent changes

Did you know that VAT may be excluded from the prices of mobile phones and laptops? With effect from 1 April 2015 (it’s no April Fool’s joke) the tax administration has extended the range of items subject to the reverse charge mechanism. The mechanism applies to B2B transactions (i.e. between two taxpayers) with the place of supply in the Czech Republic where VAT is not paid by the supplier but the customer. The customer also claims VAT for compliance with standard requirements for claiming a VAT deduction (it is a VAT neutral transaction both for the supplier and the customer).

Reverse charge mechanism

Government Decree No. 361/2014 Sb. of 22 December 2014 specifies items included in Schedule 6 to the VAT Act to which a temporary reverse charge mechanism will apply from 1 April 2015. Below is a list of items subject to the reverse charge mechanism with effect from 1 April 2015, broken down into permanent application (Sections 92b to 92e of the VAT Act) and permanent application of the mechanism (Section 92f and Schedule 6 to the VAT Act): 1) Supply of gold (Section 92b – permanent application) 2) Supply of waste and scrap under Schedule 5 to the VAT Act (Section 92c – permanent application) 3) Construction or assembly work (Section 92e – permanent application) 4) Cereals and technical plants (Government decree – temporary application), sugar beet – application effective from 1 September 2015 5) Metals including precious metals (Government decree – temporary application) 6) Mobile phones (Government decree – temporary application) 7) Integrated circuits before being built into products (Government decree – temporary application) 8) Portable automatic data processing machines, such as tablets and laptops (Government decree – temporary application) 9) Video game consoles (Government decree – temporary application) 10) Emission allowances (Government decree – temporary application) The application of the reverse charge mechanism has de facto been extended to include items 4 to 9. However, the mechanism may only be applied to these items if the minimum limit of CZK 100,000 is complied with. In addition, the goods must be specified verbally as well as using the nomenclature code of the customs tariff. To ensure uniform application of the mechanism, the General Financial Directorate issued a notification on the application of the reverse charge mechanism to selected supplies in 2015 and 2016. The notification stipulates detailed requirements for the application of the mechanism, including specific situations (such as advance payments, legal fiction, tax base determination and correction, and bonuses). Other relevant VAT areas that are worth monitoring include the taxation of the supply of real estate (the General Financial Directorate is expected to publish a long-awaited notice on this issue in the next few days) and the application of liability of the recipient of a taxable supply for tax not paid by a supplier in a difficult financial situation; this application has been recently made stricter by the interpretation of the Supreme Administrative Court.