Monday, 12 August 2019

Conditional tax penalty: Advantage or Disadvantage?

This year, the regulation of the institution of the tax penalty has changed, so a new allowance on conditional tax penalty has been introduced. However, is it really beneficial for taxpayers?

The allowance of the conditional tax penalty was contained in the new Act on Taxation, which came into force at the beginning of the year 2018. The point of the new legal institution is briefly: if the taxpayer gives up its right of appeal against the first-instance decision of the tax audit (at the latest prior the expiry of the appeal period) and pays the full tax difference provided for in the first-instance decision by the due date, the 50% of the tax penalty imposed will be an exempt payment. This rule can also be applied to a 200% of tax penalty. If the statutory conditions are fully met, the tax authority applies the allowance ex officio, so there is no need for a separate claim to be submitted in this regard.

With this, the legislator's goal was to reduce the number of unfounded appeals and to eliminate procrastination in tax procedures. While all this is fundamentally correct, on the other hand, it may also result that taxpayers restrict voluntarily and unreasonably, - in cases when they can prove their right- their right to appeal.

Taxpayers were already able to avail themselves of the benefits of proceedings initiated before 1 January 2018 if the time-limit for appeal and hence for payment of the obligation expired after 31 December 2017.

The possibility of a 50% reduction of the tax penalty can be promising for the first time, but it is worthwhile for taxpayers to be aware of what they have to do with giving up their right to appeal.
On the one hand, by making a declaration of resignation (which can no longer be withdrawn), the decision at first instance becomes final (will be binding), i.e. the tax difference stipulated in the decision must be paid within 15 days. On the other hand, a taxpayer benefiting from penalty allowance will no longer be able to avail himself of extraordinary redress in the future and will not be able to lodge an application for supervision in the case in which he has been benefited. Thirdly, it is easy to face that if the taxpayer in his own interest resigns against an otherwise illegitimate decision, he will start from a worse position in the course of an appeal against similar factual and legal decisions taken by the tax authority. Although the subsequent decision will remain debatable; however, the tax authority can then rely on the former final decision taken, which is not disputed by the taxpayer.

The biggest dilemma can be caused by cases where the decision also contains several tax related findings. It may happen that the taxpayer does not dispute all of them and would also benefit from the tax penalty allowance. However, it is not possible to "pick" from the findings, and the resignation of the right to appeal can only be made for the entire decision.

That is why we consider this legal institution to be worrying, as it encourages taxpayers to "voluntarily" give up the right to redress as a fundamental procedural guarantee in the hope of reducing the penalties imposed and facilitating faster and quicker cases. Now, there may be situations where the validation of conditional tax penalty may be beneficial, but the tax procedure cases are basically more complex and difficult. Therefore, prior making decision by the taxpayer, it is worth consulting a professional if he really wants to enforce his interests.