VAT Changes Are On Tap for the Czech Republic

Matthew Lysiak
March 29, 2016

This blog was last updated on March 29, 2016

It is common knowledge (or maybe only to the ever-multiplying hordes of beer enthusiasts) that the Czech Republic makes some of the finest beer in the world. Perhaps less obvious is the fact that the average-sized central European country also ranks at the top of world in beer consumption per capita.

Consequently, one would naturally believe that such a statistic aided the January 30, 2016 announcement of Czech Minister of Finance Andrej Babiš to reduce the value added tax on draft beer sold in restaurants. In reality, the decision is an inter-governmental olive branch of sorts and more generally, it speaks to the growing calls in Central Europe to reduce the VAT on basic necessities like food and increasingly, libations.

The Dry European Union

Article 98 of the European VAT Directive allows for member states to apply up to two reduced VAT rates in their respective countries but only for specific supplies of goods or services enumerated within the Directive. Noticeably absent from these specific supplies are alcoholic beverages.

Some countries, namely Portugal, Italy, Greece, Austria, and Sweden, have certain carve outs for low-alcohol drinks, culturally significant beverages, and domestic supplies of wine, but no country has a blanket reduced rate on alcohol. The basic principle behind this prohibition is health-related. Most foodstuffs subject to reduced rates in EU countries are what many would consider wholesome necessities such as milk, bread, and meat.

Likewise, many member states choose to subject some prepared foods and other beverages, like soft drinks, to the national standard rate. And with standard rates reaching as high as 25% in some countries, a couple of pints of larger will put you back some coin.

The Not-So-Hidden Loophole

In 2009, the EU Council amended the VAT Directive to allow for locally supplied restaurant services to be subject to reduced rates. The Council also allowed for the Member states to exclude alcoholic beverages from this reduced rate, which is exactly what the majority of states did. Some states, however, saw the language of the Directive as an opportunity to reduce the VAT on beer and wine sales while simultaneously achieving public policy objectives.

In July, Romania reduced draught beer tax from 24% to 9%, in an effort to bolster the tourism industry in the summer months. In the Czech Republic, politicians are hoping that more pilsner sales will result in more than just happier moods among its residents. The true aim of the Minister of Finance is a three-fold plan.

First, the reduced VAT will help national brewers sell more of their product domestically. Second, the hospitality industry, which will be the first industry implementing the Czech mandated electronic record of sales system, will be compensated for the inconvenience with more business. Lastly, a reduction in VAT for draught beer sales will lead the way for a single reduced rate of 10% for the majority of foodstuffs.

As this measure is implemented in the Czech Republic, it will be interesting to see the European Union’s response. Will they allow other countries to use wine and beer for national policy objectives? Here at Sovos, we continuously monitor these VAT developments to make sure your business stays compliant. Cheers!

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Matthew Lysiak

Share this post

Hungary Supplemental Insurance Premium Tax
EMEA IPT
July 11, 2022
Extra Profit Tax: An Introduction to Supplemental IPT in Hungary

This blog was last updated on October 28, 2024 Update 7 October 2024 by Edit Buliczka Hungarian Tax Office Updates IPT Declaration Form for 2023 The procedure necessary to correct an underdeclared premium figure in Hungary can be complicated. The complexity of a correction for return form 2320 has become even more challenging. Following a […]

E-Invoicing Compliance EMEA VAT & Fiscal Reporting
November 1, 2024
New ViDA Proposal Set for ECOFIN Approval

This blog was last updated on November 1, 2024 The Council of the European Union has released a new proposal regarding the VAT in the Digital Age (ViDA) reform. The proposal aims to modernise and streamline VAT systems across the EU, notably e-invoicing and Continuous Transaction Controls (CTC). Members States will review it on 5 […]

what is peppol
E-Invoicing Compliance North America
October 29, 2024
What it is PEPPOL?

This blog was last updated on October 29, 2024 Peppol E-invoicing explained: What it is and how it works The global adoption of electronic invoicing is accelerating. Governments worldwide are pushing to adopt e-invoicing to digitally transform their national systems and, often, to close the VAT gap. While many countries have introduced their own e-invoicing […]

remote sellers sales tax
North America Sales & Use Tax
October 28, 2024
Will Congress Act to Simplify Remote Seller Sales Tax Collection

This blog was last updated on October 29, 2024 When the United States Supreme Court ruled in 2018, that South Dakota’s law imposing sales tax collection requirements on sellers without in-state physical presence was constitutional, it did not grant states free reign. States are still responsible for ensuring that their sales tax requirements are manageable, […]

dtc shipping laws for craft spirits
North America ShipCompliant
October 23, 2024
Why It’s Time to Reform DtC Shipping Laws for Craft Spirits

This blog was last updated on October 23, 2024 While wine lovers have enjoyed the convenience of direct-to-consumer (DtC) shipping for nearly two decades, the craft spirits market is still not afforded the same access. Outdated and restrictive spirits shipping laws have kept the spirits industry from fully leveraging the benefits of DtC shipping, leaving […]

reporting unclaimed property
North America Unclaimed Property
October 21, 2024
Three Key Reminders for Businesses Reporting Unclaimed Property

This blog was last updated on October 21, 2024 Unclaimed property compliance is one of those legal obligations that often flies under the radar for many businesses, especially smaller ones. However, failing to stay compliant can quickly turn minor oversights into major liabilities. In many cases, the penalties far exceed the value of the property […]