This issue of Tax News is dedicated to more easily digestible topics. We outline the courts’ views on the entitlement of VAT payers to interest on retained VAT deduction (a judgment of the Supreme Administrative Court, “SAC”) and the frequently discussed right of holding companies to deduct VAT (a judgment of the Court of Justice of the EU, “CJEU”).
Interest on retained VAT deduction – Judgment of the SAC, 8 Afs 68/2013 – 46 vs Section 254 of the Tax Code
The first topic – the entitlement of VAT payers to interest on retained excess VAT deduction – was addressed by the SAC in its judgment 8 Afs 68/2013 – 46. Referring to its previous judgment (7 Aps 3/2013 – 34), the SAC stated that the tax administration was allowed to review the justification of an excess VAT deduction but only for a necessary period. A longer investigation by the tax administration is considered excessive encroachment and must be compensated adequately.
Both judgments of the SAC and the CJEU consider three months to be adequate time for the tax administration to carry out basic verification of the entitlement to excess VAT deduction. The judgments also consider this period to be time when a VAT payer may not yet request appropriate interest on the retained excess VAT deduction from the tax administration.
As for adequate interest after the expiry of the three-month period, the SAC considers as adequate (according to its judgment 7 Aps 3/2013 – 34) interest determined in accordance with Section 155 (5) of the Tax Code, i.e. the Czech National Bank’s repo rate increased by 14 percentage points. Contrary to the opinion of the SAC and the CJEU, the tax administration made a bold decision in Section 254a of the Tax Code and awarded the interest at the CNB’s repo rate increased by 1 percentage point, as late as five months subsequently. This opens up opportunities for successfully claiming higher interest before administrative courts.
Deduction of VAT paid by holding companies – C-108/14 and C-10914
We would also like to inform you about a new definition of rules for deducting VAT by holding companies as adopted by the CJEU. In its judgement in Joint Cases C-108/14 and C-10914 of 16 July 2015, the CJEU stated the following:
- If a holding company participates in the management of all subsidiaries (and on that basis, carries out an economic activity), the holding company is entitled to full deduction of VAT on costs related to the acquisition of the subsidiaries (shares in the subsidiaries), such as the costs of due diligence, share valuation and related legal services);
- However, if a holding company participates in the management of only some of its subsidiaries, it is entitled to a partial VAT deduction only.
Please contact the author if you have any questions.