NSS: Poskytnutí výpočetního výkonu do USA nebylo prokázáno

SAC: Provision of computing capacity to the USA was not proven

In a recent judgment 5 Afs 88/2022 - 31, the Supreme Administrative Court (“SAC”) dealt with an appealof a company that was denied input VAT deductionfrom the import of Antminer equipment worth CZK 21.5 million. This is specialised equipment for mining bitcoins and other cryptocurrencies. The tax administrator also disallowed VAT deductions for related goods and services (electricity consumption, rent of premises, purchase of routers, switches).

The tax authority's doubts arose because of the low ratio of input and output supplies, , which grew into doubts about the use of the acquired assets for economic activity. The company claimed that it used the assets and related inputs to provide computing capacity to the USA, a service with a place of supply outside the Czech Republic, which gives rise to a tax deduction (reported on line 26 of the VAT return). It supported its claim with a contract with the customer, invoices, witness statements and other supporting documents. However, all this evidence showed a number of inconsistencies.

According to the tax authorities, everything indicated that the company mined bitcoins for itself at the facility in question, which were then exchanged for US dollars on the Japanese cryptocurrency exchange and sent to the Hungarian account of an American customer who was personally linked to the company's managing director. The mining of bitcoins is not an economic activity in itself, as confirmed by the tax administration in a 2022 information note. As a result of the audit, the company failed to prove that it had provided a service to the US customer.  

The SAC agreed with the tax authorities. Given the intangible nature of the service claimed, it was appropriate for the company to gather such evidence as would enable it to prove its claims. However, it failed to do so.

Although the background to this dispute is clearly problematic, we would point out that, as in this case, a large number of tax audits begin with the request of the tax authorities to explain the low ratio of output and input supplies.. Companies should monitor this ratio internally and consider the economic rationale. It is also clear from the judgment that the tax administration  understands the complex environment of cryptocurrencies and is able to challenge suspicious transactions.

Author:

Jevgenija Bajziková