Lately, administrative courts have often ruled on the issue of time limit for initiating the tax audit and additional assessment of higher tax liability. The issue is topical due to that the tax authorities often take action at the very end of the three-year limitation period for tax assessment due to the emergency measures related to COVID-19.

One reason for the extension of the basic three-year limitation for tax assessment can also be the call of the tax authority to file an additional tax return. If the tax authority doubts the correctness of the tax return, this procedure is entirely appropriate as taxpayers are thus allowed to remove any inconsistencies in their original tax return voluntarily and minimise the negative sanctions associated with the additional tax assessment.

In the tax authorities’ practice, however, there were also situations where the concept of the call to file an additional tax return was overused on the part of the tax authorities mainly in order to extend the time limit for tax assessment at the moment when the call was sent to taxpayer at the very end of the basic three-year limitation for tax assessment.

What is the administrative courts’ reaction?

Administrative courts repeatedly rejected the mentioned practice of the tax authorities that confused a call to file an additional tax return with an instrument for the extension of the time limit for tax assessment.

Administrative courts have concluded that the effects of the call to file an additional tax return on the extension of the time limit for tax assessment occur only if there is a factual and temporal correlation between the call and the tax assessment. In the opinion of administrative courts, the correlation will exist only if the tax assessment directly follows the call or the subsequently initiated procedure to dispel doubts associated with the same facts as those expressed in the call, not in the assessment of the tax on the basis of the tax audit results. Tax authorities can thus initiate a tax audit only within the original time limit for the tax assessment, providing significant assurance to taxpayers. Tax authorities are bound by the administrative courts’ conclusion.

Is the tax authority currently conducting a tax audit concerning any of your tax liabilities, even though you did not agree with filing of an additional tax return? If so, we consider it appropriate to assess whether the tax audit was initiated within the original three-year time limit for the tax assessment. The tax audit could have been initiated illegally and the tax authority may not be entitled to assess any additionally tax.