In our practice, we have noted that the Financial Administration examines the legitimacy of the deduction of gratuitous performance reported on line 260 of the corporate income tax return. Doubts about the accuracy, truthfulness, conclusiveness and completeness of the data on donations are justified by the amount of the deduction and the tax administration requires the submission of evidence – donation agreement. But is a high value on a particular line of tax return in itself a reason to initiate a Doubt Removal Procedure (POP)? This question was addressed by the Supreme Administrative Court (SAC) at the end of last year in its judgment Ref. No. 4 Afs 181/2025.
In its judgment, the SAC recalled the rule that an excessively high value of the performance on a certain line does not in itself (in general) constitute a sufficiently specific and convincing factual finding justifying the commencement of an POP. An exception to this rule is the case when the reported value clearly deviates from the value usually reported by the taxpayer. Therefore, the rule cannot be applied mechanically, without considering the specific circumstances of the case.
In the case under the SAC review, the tax administrator initiated the POP for VAT for the period of September 2024, which was the first tax period of the taxpayer after VAT registration. The tax administrator justified the request by stating that the claimed value of the taxable supplies received exceeded the amount of the supplies made. According to the SAC, the lack of an experience with the taxpayer and its activities may be a reason for calling for the very first tax period. However, in this case, the tax administrator has already received a purchase contract for the value reported by the taxpayer in the tax return with the application for VAT registration. This was the only input supply (purchase). At the same time, the purchase contract stipulated that the purchased properties would be further leased to the seller. In the annex to the application for registration, the taxpayer stated that their economic activity is limited to rental of the properties and that they expect to start the activity in September 2024 after the completion of the purchase and the conclusion of the lease agreement for the acquired properties. According to the SAC, it could therefore be reasonably expected that the taxpayer would report an excessive deduction in the tax return. The control report corresponded to this, even at the seller. Everything thus indicated that the tax administrator had initiated the POP only because of the amount of the excessive deduction.
The answer to the question posed in the introduction is therefore the usual saying “it depends on the specific circumstances of the case”. However, if the tax administrator justifies its doubts solely by the amount reported on a certain line of the tax return without providing any other facts, while the reported value does not deviate from the value usually reported, then the initiation of the POP may be unlawful according to the SAC case-law.
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