Higher Interest on Withheld Excess VAT Deduction Can Be Claimed Retrospectively
It has been several months since landmark ruling of the Supreme Administrative Court ref. no. 1 Afs 445/2019-47 which confirmed the entitlement of VAT payers to a 14% interest on excess deduction plus the Czech National Bank’s repo rate instead of only 1% plus the Czech National Bank’s repo rate. What effect has this change had on the administrative practice of the Financial Administration? And is it possible to require a higher interest also in closed cases?
The Financial Administration informed that it would respect conclusions arising from the ruling of the Supreme Administrative Court. For the purpose of its practical implementation, the General Financial Directorate issued methodological guidance under which tax authorities should award higher interest in the event of pending proceedings regarding the interest on deduction. In practice, we experience that tax authorities actually award the higher interest, however only for the period of the withheld VAT deduction until 30 June 2017.
As for the definitely closed proceedings on the interest on deduction, tax authorities themselves do not retrospectively review what VAT payer was actually entitled to a higher interest. It is therefore entirely up to the VAT payer to actively exercise his claim from a tax authority. In certain cases, a higher interest may be a considerable sum.
An example from practice
An example may be a company whose VAT deduction amounting to CZK 10 million for the taxation period of January 2014 was withheld by a tax authority until 20 June 2017. As compensation, the tax authority awarded only the amount of approximately CZK 300 thousand (1% plus Czech National Bank’s repo rate for the period from August 2014 until the payment of the VAT deduction). After the ruling of the Supreme Administrative Court was issued, the Company asked for a review of the interest amount and the tax authority, also bound by
the methodological guidance of the General Financial Directorate, awarded the interest of almost CZK 4.3 million (14% plus Czech National Bank’s repo rate for the period from May 2014 until the payment of the VAT deduction) to the company. The company thus subsequently recovered an amount of CZK 4 million in a short time.
In summary, VAT payers should carefully verify the amount of the awarded and paid interest on VAT deduction in the past and, in relevant cases, actively request a change in the original decision on the interest. However, a change in the amount of the interest is possible only within 6 years after the overpayment arose.