In the recent ruling 10 Afs 382/2020, the Supreme Administrative Court dealt with the legal matter of whether interest can be charged on the interest on unlawful conduct of the tax administrator. In the case in question, the tax authorities delayed assessing interest on unlawful conduct of the tax administrator, which consisted in an incorrectly additionally assessed tax for a period longer than three years (first interest). The plaintiff required compensation for the delay in the form of interest on the unlawful conduct of the tax administrator (second interest). The tax authorities rejected the claim to the second interest, arguing that the conditions of the interest had not been met and that tax law prohibits further charge of interest.
The Supreme Administrative Court concluded that charging interest on the interest on unlawful conduct of the tax administrator is not excluded in the effective wording of the Tax Code. The ban on charging interest on default interest cannot be transferred to the interest on unlawful conduct of the tax administrator. Besides, even within private law, charging interest on interest is allowed and the New Civil Code provides for the charging interest on interest on receivables arising from illegal conduct.
Regarding the conditions of the second interest, the Supreme Administrative Court concluded that tax authorities cannot avoid their responsibility for timely and ordinary payment of the first interest, stating that the assessment of this interest is not a formal decision of the tax administrator, but only a “simple” act. The fact that the tax administrator assessed the first interest on unlawful conduct, i.e. the interest on a tax that the plaintiff was not obliged to pay, means that the tax administrator acknowledged its initial error.
According to the Supreme Administrative Court, the tax administrator is thus obliged to compensate for damage to the plaintiff that consists in retaining the first interest for three years. The compensation is, in this case, the interest on the unlawful conduct of the tax administrator (second interest).
The Supreme Administrative Court’s conclusions may have general impacts on cases when tax authorities refused to assess interests on unreasonably long withholding excessive VAT refund or delayed their assessment. It has to be considered individually if, in such a case, the interest on interest can be demanded from the tax administrator. If you have any questions, do not hesitate to contact us.
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