The additional tax assessment by the tax administrator gives rise to the obligation to pay interest on arrears; in addition, this often entails penalties, which may, in total, exceed the amount of the additional assessment. The institute of individual remission of tax penalties represents the way to mitigate the penalty consequences of the additional tax assessment. Moreover, on 1 January 2021, the possibility of remitting the fine for a late tax return was enshrined in the Tax Code.
Proceedings concerning the remission of tax-related interest and fees are initiated at the request of the taxable entity. The remission is conditional on the existence of a justifiable reason and the fulfilment of formal requirements, such as the payment of the additionally assessed tax, the observance of the deadline for submitting the request or the filing of the tax return which the taxable entity was delayed with. The remission of tax-related interest and fees is unfeasible if the taxable entity or its statutory body have seriously violated tax or accounting regulations.
New methodological guidance of the General Financial Directorate
To be able to uniformly assess remission requests, the General Financial Directorate (the “GFD”) has adopted methodological guidance regulating the procedure of processing the requests by the tax administration; in addition, the GFD provides examples of situations that constitute a justifiable reason as well as those which the tax administration considers a serious violation of tax and accounting regulations. Since March 2021, this guidance has been known as Guidance No. GFŘ-D-47.
In sections concerning the possibility of remitting penalties and interest, the new methodological guidance does not significantly differ from the previous one. Although the list of justifiable reasons now includes three more situations (such as the death of a single owner, who was also the single statutory body, or an unfinished VAT registration procedure as of the VAT due date), it remains non-exhaustive. Therefore, objections may be raised and evidence may be presented for other justifiable reasons as well.
For the first time, the methodological guidance states which reasons are considered by the tax administration as justifiable with regard to the remission of fines for a late tax return. This includes, for instance, the following situations: on the last day of the deadline for filing a tax return, the tax portal or the data box system were not functional; in the previous five taxation periods, the taxable entity was not obliged to file a tax return, or it erroneously filed a quarterly VAT return instead of a monthly one. In this case, the list is illustrative as well, so it is possible to request the remission of a fine in other situations too. However, it remains unclear whether the tax administration will consider the asserted reason to be justifiable or not. The tax administration assesses the fulfilment of the justifiable reason for late filing of a tax return retrospectively as of the last day of the deadline for filing a tax return.
Saving may be significant
Through the remission request, penalties may be reduced by up to 75%. In the case of interest on arrears, deferral or fines for a late tax return, penalties can be eliminated completely. However, these cases are rare, and it is more likely to be granted a remission of 20-70%. An increase in the scope of the remission may be achieved by providing evidence that the financial situation of the taxable entity substantiates the severity of the interest or penalty incurred. Thus, this will mainly concern circumstances for which it would be possible to defer the payment of the tax, e.g. if there is a possibility that the taxable entity may incur serious damage or the tax cannot be collected all at once. In the current situation, the reason may also concern circumstances connected with the pandemic and the process of averting its consequences, e.g. increased expenses, lower income, suspension of operations or loss of contracts.
For the sake of completeness, we add that other significant reduction in the interest on arrears may be achieved through the institute of tax deferral.
Remission based on the decision of the Minister of Finance
In addition to the remission of tax-related interest and fees on the basis of individual requests, there is also the mass remission of taxes or tax-related interest and fees based on the decision of the Minister of Finance. Over the course of the last year, a number of time-limited decisions have been received; on their basis, several tax-related interest and fees were remitted, such as interest on arrears for specific reasons connected with COVID-19, fines for late filing of a tax return or control statement as well as certain administrative fees related to the request for deferral or remission. The decisions are published in the Financial Bulletin of the Ministry of Finance of the Czech Republic. Due to the amount of detail and exceptions, it is advisable to assess the application of individual decisions to specific cases on an individual basis.
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