School Fruit Scheme: A State-Fund Subsidy as Consideration for Supplies
Where a payer supplies goods to schools 'free of charge' under a supported programme and collects a subsidy from a state fund for doing so, the supply is not gratuitous — the subsidy constitutes consideration paid by a third party. The activity is therefore economic, with a full input-VAT deduction and output tax due on the subsidy received.
Facts
A company participating in the Czech 'School Fruit and Vegetables' scheme bought produce from distributors and delivered it to pupils without direct payment from the schools; its costs were compensated by the State Agricultural Intervention Fund (SZIF). It claimed full input VAT deductions. The tax administration first challenged the deductions for lack of economic output activity (the supplies being 'free'), then revised its reasoning: the SZIF subsidy itself was the consideration.
Legal assessment
The Supreme Administrative Court confirmed that who pays the consideration is not decisive — payment by a third party also qualifies where it is directly linked to the supply of specific goods to a specific recipient. The SZIF subsidy was not a general operating grant but compensation calculated by reference to the goods delivered, and thus formed the counter-value of the school deliveries. The supplies to children were therefore not out-of-scope gratuitous transactions: they were ordinary taxable supplies preserving the full input deduction, with the output taxable amount derived from the subsidy received.
Practical impact
Practically: run a direct-link test on every subsidy or compensation — if the amount is calculated by reference to specific goods or services delivered to specific recipients, it is third-party consideration: the full input deduction stands and the subsidy enters the output taxable amount (Sec. 36 of the Czech VAT Act, price-linked subsidy). A general operating grant with no link to unit supplies is not consideration. Settle the classification before filing and document it in writing (programme terms, calculation formula) — an error produces an assessment either on the output side (untaxed subsidy) or on the input side (deductions denied for 'gratuitousness').