Recently, it can be noticed that the Czech tax authorities have started focusing on the application of the updated rules concerning the VAT exemption for services relating to the export/import of goods that are applicable from 1 March 2018 onwards and are summarized in an Information issued by the Czech tax authorities.
The mentioned Information was issued by the Czech General Financial Directorate at the beginning of 2018 in the wake of the CJEU's judgment in L. Č. IK v Valsts ienemumu dienests (C-288/16) and outlines the view of the Czech tax authorities on the exemption of services relating to importation and exportation of goods within the meaning of Article 144 and Article 146 (1)(e) of the VAT Directive.
In the L. Č. case, a company, Atek, concluded a contract with a consignor for the transport of goods from the port of Riga (Latvia) to Belarus. However, the actual transport of the goods was assigned by Atek to L.Č. under a second contract. In particular, L. Č. was responsible for driving the vehicles (which were owned by Atek), loading, unloading, customs declarations, car repairs and refuelling, surveillance of the goods, and transfer of goods to the consignee.
L.Č. regarded the supplied services as services connected with export of goods and thus applied a 0% VAT rate to those services. This position was challenged by the Latvian tax authorities and the case came before the CJEU. After considering the facts, the CJEU decided that "Article 146(1)(e) of Council Directive 2006/112/EC of 28 November 2006 on the common system of value added tax must be interpreted as meaning that the exemption laid down in that provision does not apply to a supply of services, such as that at issue in the main proceedings, relating to a transaction consisting in the transport of goods to a third country, where those services are not provided directly to the consignor or the consignee of those goods."
After consideration of the wording of the VAT Directive, the Czech VAT Act and the decision of the CJEU in the L.Č. case, the Czech tax authorities concluded, or more precisely repeated, that in order to apply the VAT exemption for services relating to export or import of goods, there must be a direct link between the service and the import or export of goods.
It follows from the Official Information of the Czech tax authorities that it is possible to exempt only those services that are objectively invoked by the import/export of goods and that contribute to the realization of the import/export of goods. In addition, the tax authorities require at the same time that the services are provided directly – meaning that there must be a direct relationship between the services provider and the importer/exporter, the recipient, or the consignor.
In other words, it is insufficient for the application of the VAT exemption that the service is merely connected to the import/export of goods - there should also be a contractual relationship between the services provider and the importer/exporter, the recipient, or the consignor.
Please be aware that in the event of an incorrect application of the VAT exemption relating to services connected with export, the Czech tax authorities might assess the VAT together with the penalty of 20% of the unpaid VAT and the late payment interest (currently 14.75% p.a.).