The Supreme Administrative Court (SAC) recently addressed the question of the relationship between an inadmissible tax return and the amount of the penalty for late tax return submission. In its judgment ref. no. 5 Afs 307/2024, SAC reached a favorable conclusion for taxpayers, stating that the alternative deadline for fulfilling the obligation to file a tax return set by the tax administrator in a call does not affect the possibility of reducing the penalty for late tax return submission by half, if the inadmissible tax return was filed within 30 days of the expiration of the regular deadline for its filing.
A company failed to file a proper VAT tax return for December 2021 within the statutory deadline of January 25, 2022, nor within the five working day grace period after the statutory deadline, during which a late tax return is not sanctioned despite the late submission. Therefore, the tax administrator issued a call to file the tax return within an alternative deadline set in the request, with the last day of the deadline being February 21, 2022. The company did not comply with the callto file the tax return within the deadline set in this way. In accordance with the Tax Code, the expiration of the alternative deadline automatically initiated the assessment procedure, during which the filing of a tax return is inadmissible. However, if an inadmissible tax return is filed during the assessment procedure, the tax administrator will use the data stated in the inadmissible tax return when determining the tax.
The company filed the tax return only after the initiation of the assessment procedure on February 22, 2022, i.e., within 30 days of the expiration of the regular deadline for its filing. The tax administrator used the data from the inadmissible tax return and on February 23, 2022, issued a VAT assessment. Subsequently, the tax administrator imposed a penalty on the company for the late filing of the tax return, but in determining its amount, did not take into account the fulfillment of the condition for reducing the penalty by half, which consists in filing the tax return within 30 days of the expiration of the regular deadline for its filing. The company defended itself against the amount of the penalty with the Appellate Financial Directorate (AFD) and subsequently in court.
The SAC concluded that the failure to file a tax return even within the alternative deadline set by the tax administrator has consequences only for the assessment procedure. These consequences are the automatic initiation of the assessment procedure and the possibility for the tax administrator to determine the tax based on auxiliary means. However, the alternative deadline, and its observance or non-observance, does not in itself affect the amount of the penalty for late tax declaration. Although it is not possible to file a tax return during the assessment procedure, if it is filed anyway, it will always be an inadmissible tax return. At the same time, however, the SAC recalled that the Tax Code allows the tax administrator to base the tax assessment on this return. Therefore, according to the SAC, the view of the AFD, that an inadmissible tax return should be regarded as non-existent, cannot be accepted. Formally, the tax return was indeed not filed, but materially it was, and the tax administrator can proceed from the data contained therein. Therefore, for the purpose of imposing a penalty for a late tax return, an inadmissible tax return must also be taken into account.
The SAC reiterated that the Tax Code sets a half-rate penalty for a late tax return if two legal conditions are met: (i) the tax return was filed within 30 days of the expiration of the regular deadline for its filing, and at the same time (ii) it must be the first delay in filing a tax return in the given year. If these two conditions are met, the penalty for a late tax return is halved. And this is regardless of whether the tax return was admissible or not.
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