VYRTYCH: The Tax Authority's Burden of Proof in VAT Fraud Participation
A finding that a payer knew or should have known of participation in VAT fraud requires a complex analysis of specific suspicious circumstances and their interconnections. Only where the suspicious facts are not random and isolated, but linked so that they significantly strengthen the suspicion and minimise the probability of honest conduct, can such a conclusion be drawn. Published as No. 3275/2015 Coll. of SAC decisions.
Facts
The tax authority denied VYRTYCH a.s. input VAT deductions, claiming involvement in a fraudulent chain. The company proved actual receipt of the supplies, their scope, price and use in its economic activity; what remained disputed was whether it knew or should have known about its suppliers' fraud. The Prague Municipal Court dismissed the action and the Supreme Administrative Court addressed the allocation of the burden of proof.
Legal assessment
Building on CJEU case law (Optigen, Kittel), the SAC stressed that once a payer meets the substantive and formal deduction conditions and carries its burden as to the actual supply, the burden shifts to the tax authority: it must prove objective circumstances showing the payer's knowledge of the fraud or negligence. Random or isolated indications do not suffice — a coherent chain of circumstances is required which, taken together, excludes a reasonable probability of honest conduct. The authority produced no such findings, so the deduction could not be denied.
Practical impact
Practically: prove the reality of the supply with a chain of evidence — contract or order, delivery note or handover protocol, transport documents, and for services photo documentation plus ongoing correspondence. Only once the authority presents interlinked suspicious circumstances does your awareness come into play; an isolated indication (no website, supplier's virtual seat) does not stand alone. On appeal, always demand that the authority specify which circumstances form the 'coherent chain' and target those you could not have known at the time of the deal — awareness is judged at the moment of the transaction, not in hindsight.