Opinion of the Advocate General — ECLI:EU:C:2019:1137
Date: 2019-12-19
Language of the case: Czech
Subject matter: Taxation;Value added tax
Procedure: Reference for a preliminary ruling
Origin: Czechia

Summary  C-446/18 — 1 
Case C-446/18  
Summary of the request for a preliminary ruling pursuant to Article 98(1) of 
the Rules of Procedure of the Court of Justice 
Date lodged:  
9 July 2018  
Referring court:  
Nejvyšší správní soud (Czech Republic) 
Date of the decision to refer:  
31 May 2018  
Applicant:  
AGROBET CZ, s.r.o. 
Defendant:  
Finanční úřad pro Středočeský kraj 
  
Subject matter of the main proceedings 
The main proceedings concern an appeal on a point of law brought by the 
company AGROBET CZ, s.r.o. against the judgment of the Krajský soud v Praze 
(Regional Court, Prague) upholding the decision of the tax authorities not to 
assess a part of value added tax, in so far as that part is not affected by an ongoing 
tax inspection. 
Legal basis of the request for a preliminary ruling 
Article 267 TFEU 
Question referred for a preliminary ruling 
Is it consistent with European Union law and in particular with the principle of 
VAT neutrality for a Member State to adopt a measure which makes the 
assessment and payment of part of a VAT deduction claimed conditional on the 
CS EN  
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING — CASE C-446/18 
 
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completion of a procedure applying to all taxable transactions in a given tax 
period? 
Relevant provisions of EU law  
Articles 183 and 273 of Council Directive 2006/112/EC on the common system of 
value added tax, as amended (‘the VAT Directive’) 
Relevant provisions of national law  
Under Paragraph 105(1) of Law No 235/2004 on value added tax (zákon č. 
235/2004 Sb., o dani z přidané hodnoty), as amended (‘the Law on VAT’), ‘when, 
following an assessment of excess VAT, the refundable overpayment is more than 
CZK 100, it shall be refunded automatically within 30 days of the assessment’. 
Under Paragraphs 89 and 90 of Law No 280/2009, the Tax Code (zákon č. 
280/2009 Sb., daňový řád), in the version in force until 31 December 2016 (‘the 
Tax Code’), in a situation where it appears from a proper tax claim submitted that 
a tax deduction is due to the taxable person, the tax authority shall, where there is 
doubt, issue a request for information to eliminate any doubts; if those doubts are 
not then eliminated and the amount of tax is not established with sufficient 
credibility, the tax authority may initiate a tax inspection. 
According to the referring court, the Tax Code does not lay down any maximum 
period of time for a tax inspection or for the assessment procedure within which 
the tax inspection is being carried out, apart from a time limit for calculating the 
tax (under Paragraph 148 of the Tax Code, where a tax inspection is initiated 
before expiry of the time limit laid down for calculating tax, the tax must be 
calculated within three years of the start of the inspection; inter alia, the period of 
time allowed for calculating tax shall be suspended during ongoing international 
cooperation in tax administration, but shall in any event be no longer than 10 
years).  
Paragraph 254a of the Tax Code provides that if a procedure to eliminate doubt 
relating to a proper tax claim, from which it appears that a tax deduction is due to 
the taxable person, continues for more than five months, the taxable person shall 
be entitled to interest on the tax deduction determined by the tax authority; the 
amount of interest corresponds annually to one percentage point above the repo 
rate set by the Czech National Bank (later revision, with effect from 1 July 2017, 
inter alia raised this to two percentage points). 
According to the referring court, in the years 2013 to 2017, the two-week repo rate 
was 0.05% p.a. on the first day of each half-year, and interest on a retained tax 
deduction, as in the applicant’s case, was 1.05% per annum of the retained 
amount. 
AGROBET CZ 
 
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Brief description of administrative and judicial procedures 
Administrative procedure 
1 Early in 2016 the company AGROBET CZ, s.r.o. (‘the applicant’) submitted 
value added tax (‘VAT’) returns for the December 2015 and January 2016 tax 
periods, reporting excess VAT in the amounts of CZK 2 958 167 and CZK 
1 559 241 respectively. The Finanční úřad pro Středočeský kraj (Tax Office for 
the Central Bohemia Region) (‘the defendant’) initiated a tax inspection in regard 
to those tax returns, in order to determine whether there was a proper VAT claim 
‘for the December 2015 tax period [or the January 2016 tax period] corresponding 
to commodity trade in rapeseed oil’. 
2 As regards the 2015 tax period, the defendant, in response to the applicant’s 
request for information, explained that the commodity trade in rapeseed oil would 
be reviewed more comprehensively and that it also wished to verify the 
correctness of classifying the commodity at the standard tax rate. As regards the 
January 2016 tax period, the defendant, in response to the applicant’s questions, 
stated that it had ‘wide-ranging doubts of a general nature relating to the trade in 
rapeseed oil’ — specifically, ‘whether deliveries were effected, what kind of 
commodity was involved and whether deliveries were made to the purchasers 
declared and received from the suppliers declared’. The defendant regarded the 
fact that goods were imported into the Czech Republic from another Member 
State and then resupplied from the Czech Republic to the other Member State as 
unusual: although this is not unlawful, it was the reason for checking those 
transactions. 
3 The applicant lodged complaints against both tax inspections, in which it argued 
that its excess VAT had been retained even though the tax authority had doubts 
about only a smaller part of the excess claimed and that this was 
disproportionately onerous for the applicant. Moreover, the defendant should have 
initiated a procedure to eliminate doubt, rather than a tax inspection. If the 
defendant did not consider this approach to be possible, it should have initiated a 
tax inspection only after having assessed (and paid) the excess VAT, which would 
have spared the applicant the financial risk inherent in retention of what were in 
fact the third and fourth excesses in a series. The referring court is aware, on the 
basis of related proceedings, that another tax inspection of the applicant (possibly 
preceded by a procedure to eliminate doubt) had already been initiated, with 
respect to the October 2015 and November 2015 tax periods. The applicant had 
also not received payment of its declared excess VAT for those periods. 
4 The defendant did not find the complaints justified, stating that it had reviewed 
not only the purchases but also the sales of crude rapeseed oil and that a procedure 
to eliminate doubt concerning the October 2015 tax period and a tax inspection for 
November 2015 had found that the traded rapeseed oil originated in Poland, was 
traded in an unchanged form in the Czech Republic and then redelivered to Poland 
by the applicant, which raised the defendant’s doubts about the commercial 
SUMMARY OF THE REQUEST FOR A PRELIMINARY RULING — CASE C-446/18 
 
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transactions declared and their effects for VAT purposes. Given the existence of 
these doubts and because tax inspections had been initiated, assessment of tax in 
respect of those tax periods was precluded. 
5 The applicant then asked the defendant’s tax appeals body to investigate the 
treatment of its complaints, arguing that it purchased crude rapeseed oil from a 
reputable supplier which is long established on the market and fulfils its 
obligations to the Treasury (in other words, has paid output VAT). It added that 
the retention of the whole of the declared excess VAT is disproportionate to the 
objective pursued, that is, protection of the public purse against tax evasion, and 
that failure to carry out a partial assessment of VAT is incompatible with EU law. 
6 The tax appeals body found the applicant’s request to be unjustified, observing 
that the Tax Code does not provide for the issue of a partial payment assessment 
notice and that VAT always relates to the tax period as a whole. 
7 Oral arguments between the applicant and the defendant were heard on 31 May 
2016: in the course of these, the applicant claimed that the defendant’s approach 
was effectively preventing it from trading in crude rapeseed oil. At the same time, 
it offered to secure the disputed part of the tax, if the tax authority would assess its 
excess VAT. The defendant stated that it did not yet know the outcome of an 
international letter rogatory and that it could not prejudge the approach it would 
adopt if the applicant wished to trade in rapeseed oil in the future. 
8 On 15 July 2016 the Polish tax authorities replied to the defendant’s request for 
information, stating that the purchaser declared by the applicant was 
uncontactable and met the criteria for definition as a ‘missing trader’ company. 
9 In November 2016 the applicant made an application to the tax appeals body for 
protection against inaction, seeking an assessment of excess VAT on the 
undisputed amount of tax and referring to the judgment of the Regional Court, 
Prague, of 4 October 2016, which, making reference to the judgment of the Court 
of Justice of the European Union of 18 December 1997 in C-286/94, Molenheide 
and Others, found in favour of the applicant and ordered the defendant to 
calculate the applicant’s VAT for the October 2015 tax period, in so far as such 
tax was not within the scope of an ongoing tax inspection. The tax appeals body 
did not allow the application: it emphasised that the judgment of the Regional 
Court, Prague, was not definitive (it was under appeal on a point of law) and 
reiterated that where tax liabilities give rise to excess VAT, the latter relates to the 
tax period as a whole, not only to the part for which the transactions were 
reported. 
Judicial procedure 
10 On 30 January 2017 the applicant submitted two applications against the 
defendant’s inaction, requesting the court to require the defendant to issue, within 
30 days of the judgment becoming final, a decision showing the tax calculation for 
AGROBET CZ 
 
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the applicant’s value added tax for the December 2015 and January 2016 tax 
periods, in so far as such tax was not within the scope of an ongoing tax 
inspection. 
11 In the period between submission of those applications and delivery of a judgment 
by the Regional Court, the Nejvyšší správní soud (Supreme Administrative 
Court), on 11 May 2017, in appeal proceedings brought by the defendant on a 
point of law, set aside the above-mentioned judgment of the Regional Court of 
4 October 2016 on the ground that in so far as the Tax Code does not expressly 
provide for the possibility of issuing a partial payment assessment notice, the tax 
authority may not acquire the power to do this without a statutory basis. On the 
judgment of the Court of Justice in Case C-286/94, Molenheide and Others, the 
Supreme Administrative Court stated not only that that judgment did not hold that 
national law should allow partial assessment of excess VAT corresponding to the 
unchallenged part of the deduction, but also that the Belgian rules are 
diametrically different from the Czech legislation, which enshrines the protection 
of rights against disproportionate, dilatory or arbitrary conduct on the part of a tax 
authority. The taxable person concerned may, in prescribed circumstances, seek 
an order requiring the dilatory tax authority to issue a decision in the matter of the 
VAT under review: not, however, a partial decision, but one relating to VAT for 
the whole tax period. 
12 Citing that annulling judgment of the Supreme Administrative Court, the Regional 
Court, Prague, by judgment of 13 June 2017, dismissed the applications against 
the defendant’s inaction with regard to the December 2015 and January 2016 tax 
periods. The applicant brought an appeal on a point of law against this judgment, 
in which it claimed that national procedural law was incompatible with directly 
applicable EU law. The applicant accepted that payment of excess VAT could be 
delayed because an inspection challenging its legitimacy had been initiated, but 
only to an extent that is in accordance with the principle of proportionality, which 
was not the case here, where the retained part of the excess VAT reported by the 
applicant has never been disputed by the defendant in any way and is not the 
subject of any inspection. 
13 In its observations on the appeal, the defendant argued that it is necessary to 
distinguish between a right of deduction arising under Article 167 et seq. of the 
VAT Directive and a right to a refund of excess VAT arising under Article 183 of 
the VAT Directive. Since excess VAT relates to a tax period and results from a 
mathematical calculation, it can only be an indivisible whole. Therefore there is 
no such thing as an undisputed part of the excess VAT which could be ‘partially’ 
assessed and paid to the complainant. The taxpayer is compensated for the 
retention of excess VAT over a longer period than usual by interest on the retained 
deduction. 
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Analysis of the question referred for a preliminary ruling 
14 With regard to the case-law of the Court of Justice, the obligations imposed on 
taxable persons by the legislation of Member States are governed primarily by 
Articles 183 and 273 of the VAT Directive. In this connection, the case-law of the 
Court of Justice has stressed the importance of the principles of proportionality 
and fiscal neutrality. 
15 The referring court observes that paragraph 53 of the judgment of the Court of 
Justice of 12 May 2011, C-107/10, Enel Maritsa Iztok 3, which relates to 
extension of the period for refunding excess VAT, holds that the taxable person’s 
economic disadvantage (caused by deprivation of funds on a temporary basis) can 
be compensated for by payment of interest, thus ensuring compliance with the 
principle of fiscal neutrality. 
16 In its judgment of 18 December 1997, C-286/94, Molenheide and Others, the 
Court of Justice held, inter alia, that in the event of the retention of a refundable 
VAT balance being lifted, calculation of the interest payable by the Treasury 
which did not take as its starting point the date on which the VAT balance in 
question would have had to be repaid in the normal course of events would be 
contrary to the principle of proportionality. 
17 The referring court also notes paragraphs 33 and 34 of the judgment of 25 October 
2001, C-78/00, Commission v Italy, relating to Article 183 of the VAT Directive, 
in which the Court of Justice held that a refund of excess VAT must be carried out 
within a reasonable period of time by a payment in liquid funds or equivalent 
means, and that, in any case, the method of refund adopted must not entail any 
financial risk for the taxable person. 
18 With regard to the procedure provided for by Czech law, the referring court 
observes that if, instead of assessing tax, a tax authority initiates a procedure to 
eliminate doubt or a tax inspection, it does not need to issue a tax assessment 
decision — thus triggering the 30-day time limit for refund of excess VAT, as laid 
down by Paragraph 105(1) of the Law on VAT — for a period of up to three years 
from the start of the tax inspection. In some cases, further incremental extensions 
may be permitted (for example, allowing time for the tax authority to 
communicate with tax authorities in another EU Member State or a third country), 
up to a maximum total period of 10 years. 
19 The Czech legislation does not allow the tax authority to make a decision on the 
tax for only part of a tax period or only in relation to undisputed taxable 
transactions: rather, if even a single transaction subject to VAT in a particular tax 
period is to be reviewed, assessment of VAT for the whole tax period is 
automatically delayed until completion of the tax inspection or the procedure to 
eliminate doubt about that tax period. This approach can be regarded as a standard 
measure to prevent tax evasion, enabling the correct assessment of tax and without 
which it is hard to envisage effective tax administration. However, the referring 
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court perceives some of the practical effects of the application of these measures 
as problematic and as undermining the principle of VAT neutrality. For example, 
where it initiates a procedure to eliminate doubt before assessing tax, a tax 
authority must delay both the assessment and the subsequent payment of a tax 
deduction that applies to all taxable input transactions in a given tax period, 
although it has doubts about only some transactions. The same is true when a tax 
inspection is initiated. 
20 The general solution confirmed by the case-law of the Court of Justice 
(establishing a reasonable period of time and applying default interest) effectively 
deals with only part of the problem of retention of deductions. The introduction of 
default interest on a retained tax deduction and the setting of a reasonable time 
limit represent a compromise between effective protection of the correct 
assessment of tax and prevention of tax evasion (to protect national public funds) 
and the principle of VAT neutrality (to protect the taxable persons being inspected 
and to achieve equality between individual taxable persons). However, this does 
not address the immediate loss of cash flow and its consequences. 
21 As regards the length of a reasonable period of time, the Court of Justice has held 
that carrying excess VAT forward to the following tax period is consistent with 
EU law (see Enel Maritsa Iztok 3, mentioned above) or that a period of one year 
of interest-free retention of a VAT deduction, as envisaged by the VAT Directive, 
is reasonable, provided that this ensures the Member State can investigate the 
legitimacy of the tax deduction to be applied (see judgment of 29 September 2010, 
C-188/09, Profaktor Kulesza, Frankowski, Jóžwiak, Orłowski, paragraph 21). 
22 As regards the retention of a refundable VAT balance, immediate loss of cash 
flow may hardly be ‘compensated for’ by back payments, after three months or 
more, of a percentage on the retained deduction, since by that time insolvency 
proceedings may have been brought, which may do very long-term damage to the 
reputation of the taxable person; enforcement may also lead to the sale of business 
assets (including irreplaceable assets such as know-how, patents and so on) or in 
effect suspend the taxable person’s prospects of discharging its obligations, which 
in turn reduces trading partners’ confidence in the taxable person. The taxable 
person may borrow to bridge the gap in current assets and will receive 
reimbursement of costs reasonably incurred for that purpose. However, high 
financial risk brings loss of liquidity for start-ups. For taxable persons who are 
spending money to secure a business in its initial months (building premises, 
purchasing equipment, and so on), suspension of payment of a tax deduction is 
often a very difficult situation to resolve. These companies frequently do not have 
any history with financial institutions, and therefore obtaining a bridging 
guarantee or loan is a complex, lengthy process. But all these situations are 
financially reparable, albeit with certain non-physical impacts on a business, 
especially in its initial phase. Indeed, it is newly established taxable persons who 
pose the greatest risk of tax evasion from the point of view of national 
governments. 
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23 The court does not consider these systemic shortcomings to be inconsistent with 
EU law, as the consequences of their application can be bridged and remain within 
the limits of what is necessary and effective for the correct collection of VAT and 
to prevent evasion. However, the referring court considers that an infringement of 
the principles of EU law takes place in the situation — and unfortunately in 
practice these do arise — where a taxable person, often without its active 
participation, becomes part of a chain tainted by tax fraud or is even just suspected 
of involvement. The tax authority must investigate this suspicion and so it initiates 
measures which delay payment of the tax deduction to the taxable person. In 
practice, the measures apply to the whole tax period: doubts about individual 
taxable transactions are clarified step by step (or it is stated directly that no doubts 
have arisen about certain taxable transactions). Even if the taxable person directly 
demonstrates a right to deduct tax from a particular taxable input transaction (or 
that the legitimacy of that deduction is in no doubt), the tax authority, having 
regard to the contingency of the measure on a tax period and not on a certain 
taxable transaction, must retain the tax deduction until it has investigated and 
made decisions on all the taxable transactions in the given tax period. Only then 
does the tax authority assess the tax. 
View of the referring court  
24 The referring court is of the view that, in the present situation, it is not possible to 
adhere to the requirement for complete neutrality of VAT. Some tax 
administration measures are entirely necessary for the correct assessment of tax 
and full ex ante correction (prevention) of all their consequences is not possible: 
compensation and remedy of the defects can never achieve full natural restitution 
(return to the status quo ante). 
25 This state of affairs results from the information asymmetries that exist. The tax 
authority waits for the taxable person to send back all the relevant information to 
allow the tax to be assessed. However, the Czech Republic is endeavouring to 
bridge this information gap by introducing measures that function online in real 
time. Yet despite those measures (monitoring statements; electronic recording of 
sales), there are still grey areas in terms of information, a situation exacerbated by 
tax refunds on crossing borders between individual Member States (deductions 
related to the transfer of goods across national borders). Member States are 
making use of measures that respond to the current and often specific challenges 
of applying VAT in practice. 
26 With respect to the requirement to maintain the principle of VAT neutrality, the 
referring court regards reference to the principles of legal certainty and 
predictability of the law as pivotal. National provisions on the retention of excess 
VAT are established in legal form and the consequences for taxpayers are 
predictable. This represents a risk that can be expected and prepared for. If, 
therefore, a situation arises in which a taxable person is confronted with doubts on 
the part of the tax authority, it should be in his interest for those doubts, where 
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they refer to a certain taxable transaction from which a tax deduction is claimed, 
to be eliminated as soon as possible. At the same time, it cannot be reasonably 
expected of the tax authority that it start paying the taxable person default interest 
from the date of issue of the request for information, as in some cases this would 
tend to create the kind of grey areas that the tax authority is obliged to check. 
Therefore a reasonable time limit on interest-free retention of excess VAT is 
justified. 
27 Thus VAT neutrality may be restricted. However, this restriction should not affect 
the right of deduction to the extent that it is systematically challenged. In this 
connection, it is necessary to achieve a balance between the State’s interest in the 
correct assessment of tax and the taxable person’s interest in obtaining the 
applicable tax deduction. 
28 It is precisely the fact that a Member State does not recognise a certain taxable 
transaction claimed — the legitimacy of which is not in doubt — for a certain 
period of time, or otherwise fails to allow its legitimacy to be demonstrated, which 
is, in the view of the referring court, a systemic infringement of the right of 
deduction. In the view of the referring court, in this particular case it is not 
justified to restrict the possibility of demonstrating that the substantive conditions 
for the right of deduction have been met (this is a formal condition for exercise of 
the right of deduction). The taxable person should not be deprived of the right to 
demonstrate the right of deduction simply because the taxable transaction at issue 
is a transaction that was reported in a certain tax period, or because all the taxable 
transactions reported in that tax period have not yet been assessed (because there 
are doubts about some of them). 
29 In general, the referring court does not dispute that VAT can be assessed for a 
certain taxable period. The practical consequence of the opposite approach would 
be the need to assess tax for every taxable transaction, which in reality is 
impossible. However, in designing the national legislation, particularly when it 
comes to providing for measures and obligations under Articles 183 and 273 of 
the VAT Directive, it should always be borne in mind that satisfaction of the 
conditions for entitlement to and subsequent payment of a tax deduction is linked 
to a specific taxable transaction; it may not therefore simply be made conditional 
generally on satisfaction of the conditions applying to other taxable transactions. 
The referring court is of the view that where the conditions for payment of the tax 
deduction on a taxable transaction are met, the tax deduction must no longer be 
retained. 
30 The court observes in passing that it does not anticipate that satisfaction of the 
substantive conditions will automatically allow the exercise (not merely the 
recognition) of the right to deduction of VAT under Article 178 of the directive. 
That distinction has been pointed out, for example, by Advocate General Kokott 
in her Opinion of 18 February 2016 in Barlis 06, C-516/14, EU:C:2016:101.