Tax administration – new attitude to VAT exemption of services connected with import and export of goods

23. 2. 2018

Without a doubt, the basic principles of VAT include the neutrality rule of this tax and the free transfer of goods belongs to basic prerequisites of free market in the EU. The process of delivering goods outside the EU is regarded as export, and vice versa, goods acquired from a non-EU-member state is defined as import.

In January, the General Financial Directorate of the Czech Republic issued a memo regarding services connected with import/export of goods and related conditions under which such services may be VAT exempted – an application of the Court of Justice of the European Union ruling on case C-288/16.

The Court dealt with a case of a practice, rather commonly adopted in a real-life situation, of the exporter (subject A) hiring contractually a logistics company (Subject B), which realizes the delivery of the goods utilizing services of yet another supplier (subject C); hence contractual relations between Subjects A and B and B and C were established. The Court ruled that the services provided by Subject C are indeed connected with realization of export, but they were not provided directly to either the recipient or the exporter of the goods and, therefore, the goods may NOT be VAT exempt.  

What, makes the memo significant and when is it to become effective? It changes the previous interpretation of the current tax law by introducing yet another requirement that needs to be met if the services connected with import/export of goods may be allowed to VAT exempt. As can be seen, a service connected with import/export does not constitute a direct connection – the new condition requires a contractual relation between the exporter/importer/recipient and the consignor of the goods which proves that the service is directly connected with the import/export and may be VAT exempt. The financial administration is to follow the new interpretation starting as of 1 March 2018.

The condition of the connection with import/export, however, will not apply for services connected with import if the service has been included in the tax base.

It should also be noted that the exemption of services as described above does not concern services which are tax exempt without entitlement to tax deduction.

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