Many companies and physical persons watch their finance from the perspective of cash-flow, the amount of interest paid or finance planning. Why is it then that tax entities do not monitor their personal tax accounts recorded by the tax authority? Let us have a look together at cases when it is good to know “what is in the tax purse” of the taxable person, what movements are performed there and when it is the right time to claim overpayments or whether there is a record of an outstanding amount to be paid to the tax authority.
What is a personal tax account?
A personal tax account is a kind of record of all tax obligations and payments of a taxable person kept by the tax authority. The tax authority maintains one personal tax account for every single taxable person and for every single kind of tax. A personal tax account is practically a kind of bank account where, on the one hand, the taxable person can monitor tax assessments arising based on income tax returns, additional income tax returns, additional payment assessments issued after a tax audit, as well as accrued interest, fines and penalties. On the other hand, it can be found on the personal tax account also the payments of the assessments that may be performed either in the form of a payment by the taxable person or a transfer of an overpayment from a different tax account.
Upon a taxable person’s request, the tax authority will issue a confirmation about the status of the personal tax account or a debt-free status confirmation. Such confirmations are mostly required when the taxable person participates in tender procedures or when it is required by banks.
Why is it good to watch your personal tax account?
The reasons why taxable persons should be more interested in the movements on their personal tax accounts are summarised below.
If a taxable person has a record of an outstanding tax payment, the default interest, which is currently – in the second half of 2019 – stated by law at 16% p.a., increases every day commencing on the fifth business day after the tax payment was due. Such experience shows that it is vitally important to monitor the state of your personal tax account as it can easily happen that a taxable person may not pay its tax correctly or in time and the outstanding amount will be subject to very high default interest.
Based on the Tax Code, there is one very specific rule regarding tax overpayments. If a taxable person does not claim the overpayment within six years after the end of the year in which the overpayment originated, the overpayment expires and becomes part of the budget from which the activities of the tax authority that kept records of the overpayment, are covered. Such a situation may occur, for example, if the company management changes and the new management did not check whether there was any overpayment from prior years on the personal tax account.
- Risk of Seizure Proceedings
Currently, even a small outstanding amount may become the subject of debt collection from the tax authorities, and this may occur even in a very short time. It is necessary to note that the tax authority starts with the easiest manner of collection, namely by ordering the amount from the bank account. In such cases, blocking the bank account may complicate the life of the taxable person significantly. Limiting the right of access to the funds on the account when the taxable person needs to maintain its normal course of business by e.g. paying out wages, settling invoices of suppliers or invoices for operating costs, may be almost liquidating. It is therefore necessary to deal with the situation in time and ideally, try to prevent the risk of seizure. Thus, under such circumstances, it is necessary for the taxable person to bear in mind the risk of outstanding amounts that could result in the situation described above – either accidentally (as a result of a secondary insolvency) or through its own fault (neglecting its legal obligations), and deal with the situation. For example, it is possible to file a deferment request or a request for a payment schedule. Tax payment deferment is possible only based on serious legal reasons when there is e.g. a risk of significant detriment.
If a certain sanction is imposed by the tax authorities, it is advisable to review whether the tax authority acted in compliance with the Tax Code. Thus, it is advisable to recalculate the amount of the fines charged on the personal tax account and verify whether their imposition is justified, whether they originated legally, whether the tax authority respected the order of the tax payments, whether the tax authority should not have paid interest for the benefit of the taxable person on the VAT deduction retained. If the taxable person ascertains any incorrectness, it should raise an objection, file an appeal or use any other means of protection.
How to find out the state of the personal tax account?
The easiest manner to find out the state of the personal tax account, i.e. whether person might be owing payments on taxes or whether there is a record of an overpayment that could be utilised elsewhere, is the possibility to view your account personally. It is interesting that this tool is used mostly only for viewing documents in the tax file whereas for viewing personal tax account it is used only very rarely.
Another manner in which taxable person can learn about the records that the tax authority keeps about a taxable person is checking the tax information box. The tax information box is a tool through which the taxable person can view via the internet selected information recorded on the personal account of the taxable person. Thus, tax entities can monitor tax payments using the tax information box. The tax authority promises that in the future, the functionalities of the tax information box should be more user friendly.
If the taxable person is under time pressure or if it, for some reason, cannot utilise the above mentioned tools, it may try to contact the tax authority informally (e-mail or phone).
It is necessary to act
All that needs to be said is that monitoring your personal tax account may pay off for many reasons, not just the ones outlined above. If a situation occurs which could result in the risks stated above, it is necessary to act, as the Tax Code states many possibilities (eg using a payment schedule, remissions of sanctions or a review of assessments using remedies). One rule applies always – disregarding whether the taxable person is threatened by seizure or expiry of its overpayment – it is always best to act immediately and proactively.
The article is part of dReport – September 2019, Tax news; Grants and investment Incentives.