Přísný přístup NSS ke zdanění bezúplatně dodané elektřiny

Strict approach of the SAC to taxation of electricity supplied free of charge

In its recent judgment (HERE), the Supreme Administrative Court (SAC) considered the taxation of gratuitous supply of electricity to tenants of buildings on which photovoltaic power plants (PV plants) were located.

The taxpayer claimed a VAT deduction on the purchase of the PV panels and subsequently sold part of the electricity produced, part of it was used for its own economic activity and part of it was provided free of charge to the tenants of the buildings on which the PV panels were located. The taxpayer was not able to prove in what proportion the electricity was used for each purpose.

Since the VAT deduction was claimed on the purchase of the PVPPs, the tax administrator considered that the supply of goods (electricity) for consideration was fictitious and output VAT was charged (even after the 5-year period for adjusting the VAT deduction had expired). However, according to the company, the tax administrator erred in assessing the use of the electricity produced and not the PVPPs themselves, which were not provided to anyone and were permanently intended for use in economic activity.

In its judgment, the Supreme Administrative Court discusses in more detail the wording of Section 13(5) of the VAT Act and states that this provision distinguishes three different alternatives which cannot be mixed or confused, as the taxpayer wrongly did in the present case. In the present case, the situation is one in which commercial property (electricity produced) has been provided without consideration, provided that a tax deduction has been claimed in respect of that property or part of it. The company's contentions that there was no permanent use of the tangible asset (the PV plant) for non-economic activities did not stand up before the SAC.

It is evident from this judgment that in practice VAT payers still have difficulties with the correct interpretation of Section 13(5) of the VAT Act, which applies even to often unexpected situations. As the SAC states, property itself often has no predetermined "destination" and it is necessary to look at how it is used.

Unfortunately, the details of the relationships with the tenants are not clear from the judgment. In the proceedings before the SAC, the payer did not attempt to dispute that the supply of electricity to the tenants was indeed free of charge (for example, arguing that the payment was already economically included in the rent or related services). It cannot therefore be entirely excluded that it could have avoided the VAT charge by a more appropriate contractual arrangement.

We would be happy to discuss specific practical situations with you. If you have any questions, please contact the authors of this article or other members of the EY team with whom you work.

Authors:

Jevgenija Bajzíková

Lenka Doležalová