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SAC on late application of VAT deduction on advance payment

In a new judgment 4 Afs 257/2020, the Supreme Administrative Court (SAC) assessed the time limit for claiming VAT deduction on an invoice for legal services.

The company claimed the VAT deduction only at the very end of the three-year period for claiming the deduction and calculated the period from the moment it received the final tax document from the law firm. The tax authorities, on the other hand, took the view that the period for deduction had already expired because the company had paid the advances before the tax point and the period for claiming the deduction should have been calculated from the time of payment of those advances. According to the tax authorities, the transactions on which the advances were paid were sufficiently known. The fact that the law firm did not issue tax documents in respect of the advances does not alter the running of the period for deduction.

The SAC agreed with the tax authority that when the advance payments were made, the future services were already defined with sufficient certainty (legal services for a specific project) and there was a direct link between the payments and the services. Although the company did not have tax documents for the advances paid, it had an invoice that was issued after the services had been rendered and could have claimed the tax deduction on that invoice earlier, thereby meeting the deadline.

In the light of this judgment, we recommend not to postpone the application of the VAT deduction and to properly assess the cases where the advance is for a sufficiently certain supply or not. We would be happy to discuss specific practical situations with you. If you have any questions, please contact the authors of the article or the EY advisory team you are working with.

Authors:

Jevgenija Bajzíková

Lenka Doležalová