The Grand Chamber of the SAC on the issue of the limitation period for tax assessment

In a recent resolution No. 1 Afs 231/2022-44, the Grand Chamber of the Supreme Administrative Court (SAC) addressed the issue of the limitation period for the assessment of tax. Specifically, the SAC commented on the following issues:

1. the procedure in the event that the tax office does not assess the tax liability in accordance with the information contained therein, but proceeds to its examination (in the form of a procedure for the removal of doubts or a tax audit) and fails to assess (assess) the tax within the limitation period;
2. the situation where the additional tax return is filed in the last 12 months before the 10-year period for determining the tax expires.

Ad i)  

What to do if the control procedures do not lead to a final tax assessment on the basis of a filed tax return within the limitation period

The Grand Chamber of the SAC found a fundamental difference compared to assessment of this situation at the time when the previous procedural legislation – the Act on Tax Administration and Fees – was in force. When this legal regulation was in force, the Constitutional Court commented on the situation in its ruling I. ÚS 3244/09, when it stated: “if the challenge procedure has not ended in the manner provided for by law and desired, i.e. with the determination of the tax liability, because the limitation period for assessing the tax has expired, then the situation arises as if the challenge procedure had not taken place at all, as it has no effect on the tax liability of the tax subject. Thus, nothing prevents the application of the provisions of Section 46(5) of Act No.337/1992 Coll. in the given procedural situation, and the law does not allow any other way of assessing the tax liability in such a case.” Thus, when the Act on Tax Administration and Fees was in force, if the tax was not finally assessed within the limitation period, the tax was assessed by default.

In its resolution, the Grand Chamber of the Supreme Administrative Court argued that the conclusions of the Constitutional Court cannot be applied when the Tax Code is in force, as the Tax Code does not allow the assessment of tax automatically, by default or by fiction. Even in situations where the tax assessed is the same as the information in the tax return, the assessment must be made by means of a payment notice, which is not served and is filed in the case file. The Grand Chamber therefore concluded that, in this situation, the assessment/additional assessment proceedings must be discontinued because of the expiry of the limitation period for the assessment of tax.

“If the procedure for the removal of doubts (tax audit) does not lead to its goal within the time limit for tax assessment and therefore does not end in the legally envisaged and desirable way, i.e. with a final tax assessment, the tax cannot be assessed on the tax subject in the tax proceedings after the expiry of the limitation period.”

The Grand Chamber also stated that if, as a result of incomplete control procedures, the assessment/assessment procedure is discontinued and the taxpayer suffers damage in the form of non-assessment of the tax claimed (usually an excessive deduction for VAT or a tax lower than the last known tax), the taxpayer has no further remedy under tax law.

The taxpayer may claim compensation for this damage pursuant to Act No. 82/1998 Coll., on Liability for Damage Caused by a Decision or Improper Official Procedure in the Exercise of Public Authority.

Ad ii)

Supplementary tax return filed at the end of the 10-year limitation period

The Grand Chamber also addressed the situation where a taxpayer files a supplementary tax return just before the end of the maximum 10-year limitation period, so the tax authority would not have time to verify its accuracy. The SAC concluded on the analogous application of Section 148(2)(a) of the Tax Code, i.e. that:

“the time limit for the determination of tax pursuant to Section 148(5) of Act No.280/2009 Coll., the Tax Code, is extended by 1 year if an additional tax return has been filed in the last 12 months before the expiry of this time limit.”

At the same time, the Grand Chamber stated that the tax authorities may carry out control procedures within such an extended period, which need not be limited to the reasons that led the taxpayer to submit the additional tax claim. However, in view of the prohibition of analogy to the detriment of the taxpayer, the resulting tax determined on the basis of the additional tax return thus filed cannot be higher than the last known tax.