Case law
21 June 2018

Right to claim the input VAT deduction from advertising services exists even if they don’t bring in new clients

A view, that the taxpayer has a right to claim the input VAT deduction from advertising services only if they prove certain economic impacts of the invoiced advertising services on their business activities is incorrect and at the same time it is not in accordance to case law. This is the result of the ruling of the Supreme Court of the Slovak Republic.

Marian Dzuroška

The Case

Our colleagues from KPMG Legal s.r.o. succeed in another tax litigation in which they represented the client in the tax case regarding a right to deduct VAT from advertising services.

In this case, the Tax Office assessed the conditions to claim the input VAT deduction under Section 49 of the VAT Act.[1]

The Tax Office did not admit the taxpayer’s right to claim the input VAT deduction due to the fact that advertising services supplied to the taxpayer were assessed as economically inefficient and the taxpayer did not prove that these were used for supply of its own goods and services as a VAT payer.

In the opinion of the Tax Office, the taxpayer did not demonstrate that the advertising services were used in the following tax periods for own business activities with the specific economic impacts of invoiced advertising services on business activities. In this regard, the Tax Office requested from the taxpayer to prove specific effects of advertisement on its business results, while efficiency of advertising services of the taxpayer was assessed solely by the number of new clients the taxpayer had attracted. The Tax Office at the same time argued that the taxpayer was not in the need to advertise his services to the business partners from the past and, therefore, did not approve the input VAT deduction for such advertising services.

Conclusions of Supreme Court of the Slovak Republic (“Supreme Court”)[2]

In the view of the Supreme Court, even advertisement which directly does not lead to acquiring new contracts (with new clients), could be considered as taxable transaction used to supply goods and services of the taxpayer if such advertising services fulfil definition of advertisement and are to the extent, costs incurred, location and method of presentation, or other relevant circumstances appropriate to the taxpayer’s business.

The Supreme Court came to the conclusion that the Tax Office cannot condition a right to input VAT deduction from taxable transactions with efficiency of advertisement, in a meaning that a right to tax deduction would belong only to advertising services which directly and immediately led to conclusion of new contracts, from which the taxpayer gained income.

In this context, the Supreme Court pointed out to its prior case law (mainly decision of the Supreme Court, case No. 3Sžf/66/2007, dated 6 March 2008) when the court stated: ‟In case of substantiation factual relation of costs to advertising services direct evidences are used in limited scope. Scope of influence of advert to consumer behaviour is not exactly measurable. As an aid criterion, it is possible to investigate the case (the immediate economic reason) of the cost of advertising...

The Supreme Court ruled out that the Tax Office cannot consider advertisement as cost, which is capable to express itself specifically, in certain time and place as a factor having an impact on generating of income.  

The Tax Office should assess whether the advertisement corresponds to the goods and services offered by the taxpayer on the market rather than to solely focus on a number of contracts newly concluded by the taxpayer as a result of the provided advertising services.


[1] Act No. 222/2004 Coll. on Value Added Tax

[2] Judgement of the Supreme Court of the Slovak Republic, dated 6 March 2018, No. 1Sžf/64/2016

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