REMISSION OF DEFAULT INTEREST

Can a long appeal procedure be a reason for waiving default interest? The Supreme Administrative Court (SAC) has also repeatedly emphasised, with reference to settled case law, that it is not. Taxpayers must take into account that if they decide to wait for the outcome of the appeal proceedings, they bear the risks involved. Let us look at the key conclusions of the recent case law, published in the SAC judgment No. 5 Afs 317/2023-25.

Author of the article: ARROWS (Mgr. Filip Ondřej, office@arws.cz, +420 245 007 740)

The length of the appeal proceedings is not a justifiable reason for remission of interest

The Supreme Administrative Court confirmed a key principle in the above judgment - the responsibility for the timely and correct payment of tax lies primarily with the taxpayer. If a taxpayer decides to appeal against an additional payment assessment and fails to pay the tax, he must, if he is unsuccessful in the appeal proceedings, pay interest on the delay, irrespective of the duration of those proceedings.

In practice, this may mean that even if the appeal authority exceeds the statutory time limit for the decision, this is not automatically a reason to waive interest for that period. The SAC relies on several key principles:

• interest on late payment is an economic substitute for missing funds in public budgets,
• it arises ex lege, i.e. by operation of law, and the tax authorities are not free to prescribe it otherwise,
• the reason for the delay is justified at the time the tax or substitute tax is due, not retrospectively on the basis of the length of the proceedings, or the pendency of the tax assessment proceedings is never a justifiable reason for delay,
• in tax administration, it is the taxpayer who has to correctly calculate and assess the tax, declare it to the tax authorities and pay it on time.

What might this look like in practice?

A company files a corporate income tax return and underreports the tax it should have reported. After a tax audit, it is assessed and the company appeals the assessment, but the decision of the appeals authority is delayed for more than a year. The appellate authority upholds the additional payment order. After the appeal decision becomes final, the company pays the tax assessed. At the same time, however, the company applies to the tax authority for remission of interest on late payment for the period during which the appeal proceedings lasted. However, the tax authority rejects the request. What next? The company will then appeal against the decision to the administrative court, but will not succeed. It then lodges a cassation complaint with the Supreme Administrative Court (SAC), arguing that the delay is primarily due to the length of the appeal proceedings. However, the SAC confirms that the main cause of the delay is the incorrect tax claim - not the length of the appeal procedure. The result? The company will have to pay interest for the entire duration of the appeal proceedings.

Can interest on the delay be waived? Yes, but only in exceptional circumstances

The Tax Code does allow for the waiver of interest on late payments under section 259b, but only for justifiable reasons. At the same time, the Supreme Administrative Court, referring to the established case law, reiterated that a justifiable reason cannot be

• thelength of the appeal proceedings as such - it cannot be said to be a justifiable obstacle to the timely payment of the tax,
• an incorrect expectation on the part of the taxpayer that the appeal would be successful,
• the tax authority's misconduct, unless it is linked to the time when the tax or substitute tax is due.

Conversely, an example of a justifiable reason for which default interest may be waived may be

• making a tax payment by mistake under a different variable symbol or to a different account of the tax authority,
• situations where the tax entity was demonstrably unable to fulfil its obligations at the time (e.g. hospitalisation of the managing director of a small company without a substitute),
• an act of force majeure, where the tax entity has been affected by a natural disaster.

It follows from the cited judgment of the Supreme Administrative Court that the tax entity must take into account that if it does not prove that the interest on late payment was due to justifiable reasons, the request for remission will be rejected.

Illustrative example

Company A expects its appeal to be successful and therefore does not pay the tax in advance. However, in the end, the appeal fails and Company A must pay the tax with interest. Firm B, on the other hand, prefers to pay the tax immediately and, if it is successful in its appeal, will receive the overpayment back with interest.

What can I take away from this?

If you are facing a tax assessment and do not want to pay high interest on late payment, consider the following steps:

• pay the tax immediately - if your appeal is successful, you will get the overpayment back with interest,
• don't count on interest being waived because of the length of the proceedings - the courts have repeatedly rejected this argument,
• prepare an effective argument - if you apply for remission of interest, you must provide reasons that the law considers justifiable.

Conclusion - prevention is better than fighting for interest waiver

The SAC confirmed that the length of the appeal proceedings cannot be a justifiable reason for waiving interest. Taxpayers are responsible for the correct payment of tax and must take into account that waiting for the outcome of an appeal carries the risk of having to pay interest for the duration of the appeal.

Do you have questions about taxes and tax administration? Need advice on strategies to minimize late payment interest? Contact us and ensure you are not only confident in the field of taxes!