The tax authority may deny the right to deduct value-added tax to a taxpayer who was insufficiently prudent

On February 23rd, 2026, the Supreme Administrative Court of the Slovak Republic, in its Case No. 4Sfk/64/2025, dismissed the cassation appeal filed by a company against the judgment of the Administrative Court in Banská Bystrica (hereinafter referred to as the “Administrative Court”) in a case concerning the review of the legality of a decision by the Financial Directorate of the Slovak Republic (hereinafter referred to as the “Financial Directorate”) denying a VAT deduction on the purchase of goods from abroad. The Supreme Administrative Court found that the commercial company was part of a supply chain tainted by tax fraud. While the company itself may not have been at fault for the tax fraud or committed it, it failed to exercise sufficient due diligence and did not implement sufficient preventive measures to prevent it.

Based on the results of a tax audit and the assessment proceedings, the tax authority denied the company the right to claim a tax deduction due to the company’s involvement in tax fraud. The tax authority found that the company had purchased goods from a new foreign partner and resold them without verifying either the quality or the origin of the goods. According to the tax authority, the company did not act with sufficient due diligence and failed to take all measures that could reasonably be expected to ensure that it would not become involved in VAT-related fraudulent transactions.

The company filed an administrative action against the tax authorities’ decisions, which the administrative court dismissed as unfounded. The administrative court concluded that the company should have taken appropriate measures to prevent its involvement in tax fraud, but failed to demonstrate that it had taken such measures; therefore, it cannot be argued that it acted with due diligence and caution. The administrative court also stated that, when exercising the right to deduct VAT, the company should be able to explain the control mechanism in relation to the supplies in question, i.e., what measures it had taken to avoid becoming part of a fraudulent chain; without implementing such measures, it assumed the risk of participating in conduct associated with unlawful tax evasion, the consequence of which is the denial of the right to deduct VAT. However, the company was unable to prove this.

The court of cassation held that, in this case, it was not in dispute that tax evasion had taken place, nor that it had resulted from tax fraud allegedly committed in connection with the activities of companies that had been specifically incorporated into the supply chain. The contents of the administrative file demonstrated, at the very least, the company’s negligent disregard. The transactions in respect of which the company claimed a tax deduction appeared to be irregular. The company did not verify the origin of the goods, relying instead on photographs of the packaging it received by email. It communicated with its suppliers and customers exclusively by email and telephone. The court of cassation therefore concluded that the company had not taken any specific measures, nor had it shown any interest in its suppliers, the terms of trade or business practices, the actions of its suppliers, or their requirements for securing the entire supply chain. The proven circumstances of the commercial relationship in the present case were dubious and capable of arousing suspicion in a reasonably diligent trader that it might be participating in a supply chain tainted by tax fraud. However, according to the court of cassation, the company failed to take measures which, by their nature, were capable of effectively preventing and averting its involvement in the fraud, thereby exposing itself to the risk of becoming part of a supply chain tainted by tax fraud.

In this regard, the court of cassation held that the administrative court had dealt with the case in question thoroughly and had reached the correct factual and legal conclusions; it therefore dismissed the cassation appeal as unfounded.

This judgment was delivered unanimously by the Supreme Administrative Court; no further remedy is admissible against it.

The decision was made by Panel No. 4 of the Supreme Administrative Court, composed of: the President of the Panel JUDr. Monika Valašiková, PhD., LL.M., and the members of the Panel, Prof. JUDr. PhDr. Peter Potásch, PhD., and JUDr. Vlastimil Pavlikovský.