At issue was VAT and tax deduction for costs of media and advertising space that EVEREST allegedly purchased from Koukni and Concept s.r.o. and Concept s.r.o.. A tax assessment was issued to EVEREST based on (1) failure to prove the receipt of the supply of “media and advertising space” to the declared extent and (2) denial of the claimed right to deduct VAT as the tax administrator found that EVEREST knew or should have known that it had engaged in VAT fraud by participating in those arrangements. An appeal was filed by EVEREST claiming that various legal formalities had not been observed by the tax authorities i.e. the tax administrator was not competent to issue the decision at all, the decision suffers from defects which render it manifestly internally inconsistent or legally or factually unworkable; the decision is issued on the basis of another void decision issued by the tax administrator; EVEREST was not a related party in relation to Koukni and Concept for the purpose of creating illegal tax optimisation. Decision of the Regional Court The Court decided in favor of the tax authorities and dismissed the appeal of EVEREST. Excerpts (in English) “The applicant alleges each of those grounds. However, in neither case did the Court find that her plea of nullity was well-founded.” “The case-law of the Court of Justice of the EU has repeatedly dealt with VAT fraud. It shows that a situation where a taxable person claims a deduction fraudulently (or abusively) is an exception to the principle that, if the substantive and formal conditions for entitlement to a deduction are met, the taxable person is entitled to the deduction (see, for example, Case C-371/08, CJEU v. Czech Republic [2006] ECR I-1753, paragraph 1). Judgments of the Court of Justice of 21.6.2012, Mahagében and Dávid, Joined Cases C 80/11 and C 142/11, paragraph 41, or of 28.7.2016, Giuseppe Astone, C 332/15, paragraph 50). However, the mere existence of fraudulent conduct is not sufficient to deny a deduction. The right to a deduction is not affected if one of the preceding or subsequent supplies in the chain of supplies was affected by tax fraud, unless the taxable person knew or could have known this (see, for example, judgment of the Court of Justice of 6 July 2006, Axel Kittel and Recolta, Joined Cases C 439/04 and C 440/04, paragraphs 45 and 49). It is therefore necessary to examine the existence of tax evasion and, if it is established, it must be shown that the taxable person knew or should have known of the evasion in order to be denied the right to deduct the tax.” “Also irrelevant is the applicant’s contention that it did not benefit from the disputed transactions but, on the contrary, profited from them. As the Court has already explained above, the right to deduct may be denied not only in a situation where the taxable person himself has committed the evasion, but also where the taxable person knew or ought to have known that he was engaged in a transaction which is part of a VAT evasion by acquiring goods or services and, by his participation in the chain, made such transactions possible, even though he himself did not directly benefit from them. In other words, a taxable person who knew or ought to have known that his purchase was part of a VAT fraudulent transaction must be regarded as participating in that tax fraud, irrespective of whether he benefits from the subsequent sale of goods or use of services in the context of the taxable transactions which he has carried out at the exit (see, for example, the VAT Code of Conduct, the VAT Code of Conduct and the VAT Code of Conduct, the VAT Code of Conduct and the VAT Code of Conduct, the VAT Code of Conduct and the VAT Code of Conduct). Bonik, cited above, paragraph 39; Kittel and Recolta, cited above, paragraph 56; and Mahagében and Dávid, cited above, paragraph 46). Nor can the expert opinion of Prof. Ing. Hótová, which concerned only the fictitious transactions between the applicant and Ebko. Its conclusions are therefore not transferable to the transactions now under examination. Indeed, in its reply, the applicant admitted that it partly agreed with the defendant as regards the applicability of that expert opinion in that it concerned fictitious transactions, but nevertheless stressed that it did not know and could not have known of the dishonest conduct of its business partners (see paragraph 60 above). The question of the applicant’s knowledge of its involvement in the fraud has already been dealt with in detail by the Court above.” Click here for English Translation Click here for other translation ...