NSS k uplatnění DPH u programu „Ovoce do škol“

The Supreme Administrative Court on the application of VAT to the "School Fruit Scheme"

The Supreme Administrative Court ("SAC") published its judgment 5 Afs 5/2021 - 29, which assessed the nature of subsidies provided by the State Agricultural and Intervention Fund ("SZIF") for the "School Fruit Scheme".

The company participating in the scheme purchased fruits and vegetables from distributors and then supplied them free of charge to schoolchildren. The company claimed full VAT deduction on the invoices from the distributors. The tax authorities initially disputed the VAT deduction claim, arguing that the company did not carry out an economic activity on the output because the supplies to the pupils were free of charge. Subsequently, it reconsidered its reasoning and stated that the supply of goods by the company was not in fact free of charge; it was the subsidy from the SZIF that was the consideration. The SAC agreed with this conclusion. In practice, this means that the company was allowed full input VAT deduction and tax was charged on the subsidy received. This is thus another of the few judgments that has reclassified a subsidy to consideration for a transaction.

Several other interesting points can be highlighted from the judgment, such as:

• Subsidies directly linked to the price of the supply are not the only form of subsidies that can be subject to VAT, but the more general concept of third-party consideration must always be borne in mind;
• The terms and conditions of subsidy projects often stipulate that the subsidy does not include VAT. According to the SAC, it cannot be inferred from this that the entire transaction should not be subject to VAT, since the obligation to pay VAT arises directly from the law. In this case, the tax authority considered the subsidy as the total consideration including VAT and calculated VAT amount pursuant to section 37(2) of theVAT Act.

If this topic concerns you, we will be happy to discuss it with you in more detail. If you have any questions, please do not hesitate to contact the authors of the article or the EY tax team you are working with.

Authors:

Jevgenija Bajziková
Filip Kučera