NSS: Řetězení společností jako zneužití práva v oblasti DPH

NSS: Chain of Companies as an Abuse of Law in the Area of VAT

On January 22, 2025, the Supreme Administrative Court (NSS) issued a ruling addressing the issue of abuse of law in the area of VAT. In this case, the plaintiff regularly transferred his economic activity (the sale of electronic cigarettes) to other companies (non-VAT payers) whenever a specific company exceeded the statutory turnover for VAT registration. This allowed him to avoid paying VAT on the sales made. The tax administrator assessed this practice as an abuse of law aimed at avoiding VAT payment.

The plaintiff argued, among other things, that he established multiple companies to avoid liability for product defects that could arise, for example, from customer complaints or quality and safety inspections by public authorities. The liability would fall on the company that no longer conducted economic activities at that time. The NSS did not accept this argument and further noted that this approach could be considered an abuse of law in areas other than taxation if it undermined the purpose of legal regulation.

The NSS upheld the decision of the Regional Court in Ostrava, confirming that it was an abuse of law and assessed the tax to the individual who orchestrated the entire structure. This ruling aligns with the recent decision of the Court of Justice of the European Union (CJEU) in the case of UP CAFFE d.o.o. (HERE), with the difference that the tax was assessed to the newly established company, which, according to the CJEU, could not benefit from the exemption regime for small businesses.

Entrepreneurs should be cautious when establishing new companies or structuring their business activities in a way that could be considered an abuse of law.

If you have any questions, please contact the authors of the article or the EY advisory team you are working with.

Authors:

Ivana Krylová

Kateřina Truchlá