(Judgment of the Supreme Administrative Court dated February 12, 2026, Case No. 3 Afs 85/2025)
The plaintiff (a self-employed individual) filed an application for VAT registration in 2023 “as a precaution,” claiming that he believed he may have exceeded the statutory turnover threshold as early as 2020. The tax administrator requested that he provide evidence of economic activity, whereupon the plaintiff stated that in the fourth quarter of 2019, he had provided a customer with commercially usable contacts. Remuneration for this service was subsequently paid to him in installments, which he substantiated with 182 unique invoices issued between 2020 and 2023. Based on this documentation, the tax administrator decided to register the claimant for VAT.
The claimant subsequently contested this decision, arguing that it was a one-time transaction, and that the invoices provided merely reflected installments for this one-time transaction. Given the above, he argued that this could not be considered an economic activity carried out on a systematic basis for the purpose of generating regular income. He therefore filed an appeal against the registration decision.
In the appeal proceedings, the Regional Tax Office (the defendant) relied primarily on the formal characteristics of the submitted invoices and the regularity of the income. It concluded that the plaintiff had engaged in economic activity, as he had collected regular monthly payments over a period of several years and issued invoices with varying dates and details, which, in its view, indicated the ongoing provision of services. It also refused to accept the customer’s affidavit proposed by the plaintiff as superfluous, stating that it lacked sufficient probative value, and dismissed the appeal.
The plaintiff subsequently filed a lawsuit with the Municipal Court in Prague (“MSHP”), which upheld the defendant’s decision. Above all, it emphasized the fact that the plaintiff filed an application for VAT registration on his own initiative, properly indicated the relevant date, and, upon request, submitted invoices with unique details. If he subsequently concluded that this was a one-time supply, the plaintiff should have better demonstrated this in the appeal proceedings.
Furthermore, the MSHP stated that, in its view, the main characteristic of economic activity is the generation of regular income, with consistency also being a significant criterion for this assessment. Based on the long-term flow of income and the number of invoices issued, it concluded that the plaintiff was engaged in a systematic activity. It rejected the argument regarding a one-time transaction, noting that it was supported only by an affidavit, which could not stand up against the other evidence. Although the court acknowledged that the defendant should have informed the plaintiff in advance of its assessment of the evidence pursuant to Section 115 (2) of the Tax Code, it considered this defect to be minor and without impact on the legality of the decision.
The plaintiff filed a cassation appeal against this decision, in which he primarily objected to incorrect findings of fact, misinterpretation of the evidence presented, and a violation of his procedural rights.
The key basis for the Supreme Administrative Court’s legal assessment was that a one-time provision of a service, even if the payment is spread out in installments, does not constitute an economic activity within the meaning of the VAT Act. Therefore, it was essential to determine whether this was indeed a one-time transaction or a continuous provision of services.
The Supreme Administrative Court criticized both the administrative authorities and the municipal court for failing to sufficiently clarify this issue. Their conclusion regarding continuous activity was based primarily on the formal characteristics of the invoices and the regularity of the income, without properly examining the actual nature of the service. It further emphasized that the regularity of income does not automatically imply the continuity of the activity; rather, its actual nature must be examined.
The Supreme Administrative Court also identified a fundamental error in the fact that the tax administrator registered the plaintiff without proper justification and without clarifying the contradictions in his statements. In the appeal proceedings, the defendant then presented evidence and formulated new evaluative conclusions without first informing the complainant of them and allowing him to comment on them. In doing so, it violated Section 115(2) of the Tax Code and deprived him of the opportunity for an effective procedural defense. Given this, the decision came as a surprise to the complainant. Another flaw was the failure to admit the proposed evidence in the form of an affidavit from the customer or, alternatively, to question the customer. The Supreme Administrative Court held that the administrative authorities could not have rejected this evidence as superfluous if they had not yet sufficiently established the facts of the case, and that this evidence in particular could have helped clarify the true nature of the transaction.
In the conclusion of the judgment, the Supreme Administrative Court also commented on the contradictory nature of the complainant’s conduct, who voluntarily filed an application which he subsequently began to dispute, while also addressing his subsequent inability to sufficiently clarify his claim regarding a one-time supply. First, it emphasized that, given the aforementioned errors, the complainant did not in fact know throughout the proceedings why exactly he had been registered for VAT and based on what specific considerations the tax administrator had concluded that economic activity existed. Subsequently, however, he also pointed out a systemic shortcoming: that within the application for registration, there is no option to proactively inquire whether the entity meets the conditions for VAT liability.
According to the Supreme Administrative Court, the only practical way to avoid penalties is therefore to register “as a precautionary measure” and subsequently challenge this procedure.
The Supreme Administrative Court then concluded that the facts of the case were not supported by the evidence presented and that the proceedings were marred by serious procedural defects, and that the Municipal Administrative Court erred in failing to consider these errors as grounds for overturning the administrative decision. Therefore, it overturned both the MSPH’s judgment and the defendant’s decision and remanded the case for further proceedings, in which the nature of the performance must be properly clarified and the plaintiff’s procedural rights must be respected.
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