Unreliable VAT payers and blacklisting

2023-09-28 08:33:57

How to do business with blacklisted companies

In recent years, there has been a significant increase in the number of companies that are blacklisted and become unreliable VAT payers. Entrepreneurs and companies should treat transactions with such organizations with caution. According to the legislation, an unreliable VAT payer is considered to be a taxpayer who seriously fails to fulfill its obligations to the tax authorities. This issue is regulated by §106a of the VAT Act.  

In what cases are entrepreneurs or companies blacklisted?

– owed at least 500,000 kroner in value added tax;

– do not comply with the deadlines for submission of mandatory reporting;

– accrue tax in a different way from what is stated in the VAT declaration;

– purposefully avoid contact with the tax authorities;

– repeatedly violate the deadlines for submitting mandatory documents;

– are involved in suspicious transactions;

The number of unreliable taxpayers and unreliable persons in the Czech Republic is increasing year by year. In 2022, their number increased by 2,159 entities in the Czech Republic. In January 2023, 26,158 entities and persons were blacklisted, including 4,934 untrustworthy VAT payers and 21,224 untrustworthy persons. This is 13% more than at the end of 2021.

What are the dangers of cooperating with an unreliable VAT payer? 

Based on the decision of a tax inspector, both individuals and legal entities may become unreliable payers. If a taxpayer is identified in the register as an unreliable taxpayer, the recipient of supplies and services is also responsible for VAT payment, i.e. the tax inspectorate can collect VAT from those companies that buy goods or services. Therefore, businesses are advised to keep an eye on the VAT register and check their business partners thoroughly. Every unreliable taxpayer is identified in the national VAT Register. The register indicates whether the taxpayer is ‘untrustworthy’. Searching the register is very easy, just enter the VAT number of the company. 

When is a buyer liable for an unreliable seller?

There are a number of cases where the purchaser is liable for VAT. For example, the tax is payable where the recipient of a taxable supply:

  • he knew/should have known/could have known that the tax specified in the tax document would not be paid/willfully evaded, or the seller has willfully fallen or will fall into a position where he will not be able to pay the tax,
  • received a shipment whose value is clearly different from the normal price,
  • received payment for the delivery by transfer to a foreign account, etc.

However, caution should be exercised here. In the past, the Supreme Administrative Court has ruled that transferring money to a foreign account or trading with an unreliable payer is not an automatic condition for tax liability. The so-called knowledge test must always be met, i.e. the company knew or should have known or could have known that VAT would remain unpaid at the time of the transaction or at the time of granting a VAT refund for such supply.

What is the usefulness of the registry?

The VAT Payers Register contains data on VAT payers, VAT payer groups and identified persons. In addition to basic information about the entity, such as (ICO), legal form, name and registered office, it also contains bank account numbers registered with the tax office. If no account number is published for the taxable person, the responsibility for VAT payment, in case the unreliable taxpayer fails to fulfill his obligation to pay it, is transferred to the buyer. Liability may also pass to the buyer in case of payment in a domestic transaction to the foreign bank account of the seller, even if this foreign account has been published.

The unreliable face is a relative novelty

The concept of “unreliable person” was introduced only in 2017.  The tax inspector takes into account whether entrepreneurs or companies deliberately fail to fulfill their obligations. Whether or not taxpayers fulfill or fail to fulfill their obligations is always left to the discretion of the tax service, which alone decides whether to impose a fine or make an entry in the above-mentioned register.

The tax inspector sends the decision, but the taxpayer retains the right to appeal. If a company or entrepreneur receives a decision from the tax authority to categorize as unreliable taxpayers, such a decision may be appealed within 15 days. At the same time, the decision will be included in the public register only after the appeal is processed by the tax authority, in case of an unsatisfactory decision.

Consequences of being blacklisted

Firms need to consider whether it is worth being blacklisted.  It may take several months to remove themselves from the list after the violations have been corrected, and the consequences of being blacklisted are loss of reputation and increased attention from financial officials.

If you find yourself on the “black list”, the punishment will be not only loss of client confidence, but also a switch from quarterly to monthly tax period, which entails more administration and more obligations. The tax inspector will strictly control the activities of such companies.

It’s not easy to get rid of the tag.

It is possible to get rid of the label “unreliable taxpayer” not earlier than one year after the tax inspectorate has issued a decision. If a taxpayer has not violated his obligations related to VAT administration for 12 months, he can apply for removal from the status of an unreliable taxpayer. If he is rejected, he will get another chance after one year.

How can I safely pay an unreliable VAT payer?

To avoid liability and possible double payment of VAT (to the supplier and to the tax office for an unreliable taxpayer), it is possible to use a special method of tax payment according to Article 109a of the VAT Law and pay VAT directly to the tax department instead of to the supplier.

Along with such payment, you must specify:

●     supplier identification number 

●     the tax against which the payment is intended

●     recipient identification number

●     the date of taxable supply or the date of receipt of payment (if no date is specified, such date shall be the date of receipt of payment by the tax authorities)

Attention! It is advisable to have a written consent for such payment from your partner, as he can claim the unpaid part of the invoice from you. 

If you do decide to pay your partner directly, it is possible to reduce your risk: 

  • by paying into a national bank account registered in the registry
  • verifying that the purchase price is at market value (i.e., it is not suspiciously low or high)

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