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The view of the application of VAT to services provided by municipalities to packaging companies is changing

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23.03.2022 was discussed at the Coordination Committee of the Ministry of Finance of the Czech Republic with the Chamber of Tax Advisors of the Czech Republic contribution1) dealing with the application of VAT to services provided by municipalities to authorized packaging companies.

According to § 5 para. Under Article 4(4) of the VAT Act, municipalities are not regarded as taxable persons in the exercise of their powers of public administration, even if they levy fees or other charges for the exercise of those powers. Those activities are therefore not subject to VAT.

The operation of the municipal waste management system pursuant to Section 59 of the Waste Act, even if municipalities collect fees from citizens set by the municipal decree, must be classified as a public service activity that is not subject to VAT.

When providing waste management, some municipalities conclude, in accordance with the Waste Act, contracts on the provision of take-back with authorized packaging companies (hereinafter referred to as "AOS"). For these services, municipalities are entitled to the agreed remuneration, i.e. they are carried out for a fee.

According to the GFD's confirmation, these services are not a public administration and their performance is therefore subject to VAT.However, until the discussion of this contribution, the GFD had taken the opposite position since 28.05.2005.

The GFD itself states "Information on the application of VAT to non-profit entities of the Ministry of Finance of 28 January 2005, published on the GFD's website, is replaced by the conclusions of this coordination committee in the part where the recycling of packaging on the basis of a contract with the "ATS" is also considered to be the performance of public administration.""

1) 591/23.03.22 Application of VAT to services provided by municipalities to authorised packaging companies and operators of collective schemes