Defence against lack of activity from the tax office and international request for exchange of information – Judgement of the SAC

The SAC issued a ruling on February 7th, 2019 by which it denied the complaining party’s appeal in cassation. 

The subject matter of the case was the fact that a limited liability company appealed to the court for defence against unlawful intervention in the form of lack of activity of the tax administration in the process of VAT controls. 

During the tax control the tax administration was inspecting the requested high-rate deductions and because the tax subject, despite having been asked, did not provide all the information or did not react at all, the tax administration asked the Italian administration to cooperate on the international exchange of information. However, even following many reminders sent out in the course of 6 months there was no response from Italy. The district court ruled that international exchange of information does not bind the tax administration with any time restrictions which would lead to the unlawfulness of the proceedings, if the benefits of waiting for the international information are more substantial than the interest of minimizing the length and cost of the proceedings. 

The complaining party pointed out in the appeal in cassation the length of the tax control and appealed against the disproportionateness of the time period for international exchange of information. 

According to the SAC, it is impossible to provide general guidelines for when the control must be finalized with regard to the results of international exchange of information or lack thereof. 

The SAC also concluded that, in this case, Council Regulation (EU) No 904/2010 should apply, not Act no. 164/2003 Sb. on international cooperation in the field of taxation, which implemented Council Directive 2011/16/EU that does not apply to exchange of information relating to the VAT. 

The reason for dismissing the appeal in cassation was that the tax administration provided a detailed description of the phase of the control and gave good reasons why the information gathered so far cannot be considered sufficient.