The Supreme Administrative Court has clearly stated when the tax administrator may not want a penalty from an assessment
Although the opinion of the enlarged Senate of the Supreme Administrative Court* came to light some time ago (at the end of 2016), the bodies of the financial administration are now proceeding as if the matter was still unclear. This fact has caused me to write this article, and to share the most important, and to some extent, breakthrough conclusions of the Supreme Administrative Court.
At the heart of the dispute is the relationship of two mutually dependent, to some extent, procedures by the tax administration, in the so-called tax assessment (it means after submitting and assessing the tax return due), respective to its application priority. The tax can be assessed on the basis of an additional tax return or by a tax control, the so-called ex-officio. The taxpayer voluntarily submits the additional tax return , or to submits it when the tax administrator asks. At the end, it is the tax administrator who chooses between initiating a tax audit or issuing an invitation to file an additional tax return.
It was not clear from the judgment of the Supreme Administrative Court, how much discretion the tax administrator has in this choice. Therefore, the case was referred to the enlarged Senate, which decided as follows:
- The enlarged Senate, based on the basic rules of tax administration, states that in the event of an additional tax assessment, it is necessary to observe a certain hierarchy of tax administrator procedures. “Its basic logic is the gradual strengthening of the authoritarian aspect of tax administration and the weakening of its “dialogical” or cooperative aspect.” In other words, the tax subject has to correct the mistake themselves. If the tax administrator, beyond the tax control, finds that the tax is higher, the tax administrator should provide the tax subject room for correction and, therefore, ask the tax subject to submit an additional tax return.
- The considerations of the enlarged Senate, corresponding to constitutional convictions, encouraging to saving an individual’s autonomy and to the restraint in the application of the strong authoritarian permissions of the public authority, can be summarised as such that the tax administrator, in reasonable doubts justifying additional tax assessment, is, in principle, obliged to ask the tax subject to submit an additional tax return and not to initiate a tax control. The conclusion of the enlarged Senate has a considerable impact on the tax subjects’ property, because the penalty does not develop by the tax assessment on the basis of the additional tax return in the form of 20% of the amount of the tax assessment (on the contrary, it is by the assessment during the tax control).
How do you know when it is the “borderline” case in practice, when it is necessary to examine whether the tax administrator acted in the opinion of the enlarged Senate? As a rule, this is the situation where tax administrators initiate tax controls in a so-called narrow range – when they are typically investigating only one or several selected suppliers / customers. In such a case, I recommend maximum caution and focus on the facts that led the tax inspector to start such a control. It may happen that the tax administrator has information on the tax assessment from another procedure, and, therefore, it can be reasonably assumed that he should not initiate a tax control in such a case, but instead ask for the submission of an additional tax return.
Finally, I can just say – let us be vigilant, do not rely on the fact that the tax administrator will always proceed in accordance with the law and judgments of domestic courts in all events. Only then are we able to protect our property rights.
*Resolution of the enlarged Senate NSS sp. 1 afs 183 / 2014-55 issued on 16th November 2016
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