In a long-awaited judgment, the Grand Chamber of the Supreme Administrative Court (the “SAC”) resolved the matter how to correctly calculate the prescription time limit in situations where the time limit for tax assessment started before 1 January 2011 (when the Act on Administration of Taxes and Fees was in force) but a legal action was filed after 31 December 2010 (i.e. when the current Tax Code was in force). If the time limit were governed by the Tax Code, the total time limit could never exceed the maximum of ten years and, after the expiry of the time limit, the Tax Administrator could no longer assess the tax. If it were governed by the Act on Administration of Taxes and Fees, the time limit for tax assessment could be extended beyond 10 years.
Facts of the case
The Tax Administrator issued revised assessments of corporate income tax to a taxpayer for the taxable periods 2006 and 2007. The taxpayer appealed against the revised assessments but was unsuccessful. Therefore, the taxpayer filed a legal action against the appeal decision in 2011, when the Tax Code was already in force. The Regional Court annulled the revised assessments in 2013. Therefore, the Appellate Financial Directorate had to decide the case again, and its decision was annulled for the second time by the Regional Court. The third appeal decision from 2019 was also annulled by the Regional Court, as the maximum 10-year period for tax assessment pursuant to the Tax Code had already expired. However, the Appellate Financial Directorate disagreed with this view; therefore, filed a cassation complaint with the Supreme Administrative Court.
Assessment of the case by the SAC
The Ninth Chamber of the SAC, which was to decide the case, referred the case to the Grand Chamber of the SAC, due to the divergent practice in the assessment of this issue between the individual Chambers of the SAC. In its judgment, the Grand Chamber first of all reminded that the rule on the interruption of the time limit during proceedings before administrative courts, which is generally provided for in the Code of Administrative Justice for all areas of public law, has not been applied to tax matters since 1 January 2011. This is because, unlike the Act on Administration of Taxes and Fees, the Tax Code contains the comprehensive regulation of the time limit for tax assessment. Therefore, from 1 January 2011, only the Tax Code as a special legal regulation applies to the interruption of the time limit for tax assessment.
In the case where the time limit for tax assessment started before 1 January 2011, the Grand Chamber of the SAC concluded, on the basis of the transitional provisions of the Tax Code, that the proceeding before the Administrative Court started after 31 December 2010 (i.e. the legal action filed after that date) interrupts the prescription time limit in accordance with the rules defined by the Tax Code. This means that, even if the time limit is interrupted because of the start and conduct of proceedings before the administrative courts, the total time limit for tax assessment can never exceed the maximum of ten years.
In the present case, the Grand Chamber of the SAC dismissed the cassation complaint of the Appellate Financial Directorate. Although the proceeding before the administrative court, which was started in 2011, had already interrupted the time limit for tax assessment (i.e. it did not run during the period of the court proceeding), it expired by the time of the issue of the last decision on the appeal because the overall maximum period of 10 years had expired.
The Financial Administration of the Czech Republic has already responded to the judgment of the Grand Chamber of the SAC by announcing via its social media profile that it is changing its current decision-making practice on the basis of the judgment. In some older cases, it is therefore possible to expect the termination of pending disputes precisely because the time limit for tax assessment has already expired.