New practice of administrative courts regarding the suspension of tax assessment period

In its judgement ref. no. 10 Afs 228/2019-53, the Supreme Administrative Court (SAC) ruled against the possibility to extend the period for tax assessment through an irrelevant international letter of request.

International letter of request

The Tax Code defines a general three-year period during which taxes can be assessed, including the facts that extend this period. One of the situations when the standard three-year period is not running is in case of a request for international cooperation, the “international letter of request”. This represents a legal opportunity for the tax administrator to request information from financial authorities of foreign countries. In the above judgement, the Supreme Administrative Court has defined limits for international letters of request and provided guidance for situations when the period is not suspended.

Interpretation of administrative courts

During the proceedings in question, the tax administrator used the international letter of request based on which it assumed that the tax assessment period was suspended. However, according to the regional court, this request was not aimed at verifying decisive facts; the lapse period was therefore not suspended, thus ending before the challenged decisions were issued.

The Supreme Administrative Court generally agreed with the reasoning of the financial administration, according to which an international letter of request suspends the period even if it does not produce the desired result, as the result cannot be predicted beforehand. However, in this specific case, according to the Supreme Administrative Court, the letter of request was incapable of achieving the required result, i.e. to confirm or deny that the amount incurred by the plaintiff was an expense aimed at obtaining, securing and maintaining taxable income. As such, it was condemned to failure from the beginning and therefore could not be the reason for the suspension of tax assessment period.

Thus, in the light of the Supreme Administrative Court’s judgment, only a letter of request that is capable of contributing to a correct tax assessment can be a reason for the suspension of the lapse period for tax assessment.

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