It is a well-established rule for most taxable entities that when they file an additional tax return voluntarily, they will not be charged a penalty representing 20% of the additionally assessed tax. The purpose of this rule is to financially motivate taxable entities to voluntarily declare and pay omitted tax liabilities to the tax administrator. However, starting from 1 January 2021, this rule has undergone a significant change due to an amendment to the Tax Code. The General Financial Directorate has even issued a methodical guideline on this topic, explaining the change in more detail.
The main rule remains the same even after the amendment – additionally declared tax in an additional tax return or additional tax statement, resulting in an additionally assessed tax, does not give rise to the obligation to pay a penalty. At the same time, however, the amendment specified that this does not apply if the additional tax return or additional tax statement were inadmissible. The amendment to the Tax Code also expanded the number of situations that make additional tax returns inadmissible, which has a very unpleasant consequence – the incurrence of penalties even in the cases of voluntarily filed additional tax returns.
Pursuant to the amended Tax Code, an additional tax return is inadmissible in a number of cases defined by law. For example, a situation when the additional tax return was filed during additional assessment proceedings, i.e. before the final decision has been made on the assessment of tax on the basis of the previously filed additional tax return.
On the basis of this change, the taxable entity will newly be obliged to pay a penalty. This can happen, for example, in the situations below, as listed in the methodical guideline of the General Financial Directorate:
- The taxable entity files a second additional tax return at a time when the tax administrator has not yet finished the proceedings concerning the previously filed additional tax return. It is not necessary for the tax administrator to initiate an audit of the first additional tax return.
- The taxable entity files an additional tax return on the basis of the tax administrator’s call for filing an additional tax return after the stipulated deadline.
The first situation often occurs when the taxable entity files the first additional tax return and realises shortly after that it forgot to include a transaction that results in a higher tax liability. In the past, if the deadline for filing a corrected additional tax return has already passed, most taxable entities used to file a second additional tax return. However, pursuant to the interpretation of the General Financial Directorate, filing a second additional tax return would now result in a penalty.
If the second situation occurs, the taxable entity is sanctioned by a penalty for failing to meet the deadline stipulated by the tax administrator for filing an additional tax return. The reason for this is the provision of the Tax Code, according to which the lapsed deadline for filing the tax return triggers the commencement of assessment or additional assessment proceedings.
There is also a third situation that results in a penalty being imposed in the case of a voluntarily filed additional tax return; however, it is not listed in the methodical guideline, as it was already applied before the amendment to the Tax Code. This situation includes the filing of an additional tax return during a tax audit or a procedure to remove doubts. This is because case law has established that filing an additional tax return after the initiation of a tax audit is not, in fact, a voluntary act, as it is triggered by said tax audit.
Any potential penalty can be reduced by up to 75% by filing a waiver request, provided that certain conditions have been met. It is also worth considering using the institute of appeal against the penalty, in case it was imposed illegally.
What is worth keeping in mind?
When filing an additional tax return, it is important to know whether the additional assessment proceedings initiated on the basis of the previously filed additional tax return have already ended or whether they have led to the additional tax being assessed by implication. A good tool for this purpose is a request for a copy of the additional tax payment assessment sent together with the additional tax return. Another possibility is using the tax information box. It is also important to comply with the deadline stipulated by the tax administrator’s call for filing an additional tax return. This deadline can be extended by the tax administrator upon the taxable entity’s request.