The time limit for the assessment of tax and, in particular, its expiry is crucial for tax proceedings. The expiration of the time limit for the assessment of tax extinguishes the right of the state to control and assess the tax. The commencement of a tax inspection is also relevant to the time limit of the assessment since the time limit is reset at that point. However, in order for the commencement of a tax audit to have an impact on the time limit for the assessment of tax, the audit must also be commenced in a material sense, as it is not sufficient merely to commence formally.
In its judgement of 20 February 2023, No. 10 Afs 455/2021-36, the Supreme Administrative Court (“SAC”) dealt with this issue, also in relation to the request to the bank to provide information regarding the taxpayer’s account.
Subject of the dispute
In the case under review, the taxpayer was served with a notice of initiation of a tax audit on 10 February 2021, together with a request to submit the listed documents. Subsequently, on 13 April 2021, the tax administrator issued a call for evidence. It was essential to the subject matter of the dispute that on 1 April 2021, the time limit for the assessment of the tax was due to expire.
In the subsequent court case, the taxpayer argued in particular that the tax file does not show that the tax administrator took active steps to establish the tax liability before 13 April 2021. This inaction should have fulfilled the conditions for the application of Section 87(3) of the Tax Code, which provides that if the tax administrator does not start to establish tax liability or verify the taxpayer’s claims, in other words, remains passive after the formal initiation of a tax audit, then the effect of the initiation of the tax audit occurs only on the day when it becomes active and starts to verify and establish the relevant circumstances. The taxpayer, therefore, argued that the tax audit was initiated by factual steps after the expiry of the limitation period and would therefore be unlawful.
SAC’s judgement
Therefore, the main issue in the dispute was whether the tax administrator was inactive after sending the notice of initiation of the tax audit. In this context, the Supreme Administrative Court also referred to the actions related to the initiation of the audit activity, in particular to the request to the bank pursuant to Section 57(3) of the Tax Code to provide data on the taxpayer’s account, which was sent by the tax administrator prior to the delivery of the notice of initiation of the tax audit. According to the Supreme Administrative Court, it was evident that the tax administrator was not passive but actively took steps related to the tax inspection already before the date of the formal commencement in the form of the notice. The notice then called for the submission of a number of documents. However, the taxpayer did not respond to that request. The tax administrator, therefore, issued a request for evidence.
With regard to the provisions of Section 87(2) of the Tax Code, the actual steps do not have to be immediately connected with the formal commencement of the tax audit, but the tax administrator must act without undue delay. In the present case, the second notice was issued 7 weeks after the expiry of the deadline for the submission of the documents pursuant to the notice, which satisfies the ‘without undue delay’ condition. The SAC referred to earlier case law, which defined formal action by the tax administrator as situations where the tax administrator took the first actual step within a few months of the formal initiation of the tax audit. However, this was not the case here.
The limitation period, and in particular its passing, pausing, suspension and expiration, must therefore be assessed in the light of the individual circumstances of each case.
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