Based on our experience over many years, we can say that disputes over the interpretation of tax laws constitute only a minimum of tax disputes. The predominant part is a dispute over the proof of facts. Tax administrators are experts at denying the evidence of taxpayers. Without a detailed knowledge of the procedural provisions of the Tax Code and the rulings of the Supreme Administrative Court, it is very difficult to stop their illegal practices.
As co-authors of the most prestigious gray commentary on the tax code, we know best what the tax administrator can afford. In addition, we regularly comment on all new tax rulings of the Supreme Administrative Court and the CJEU for Wolters Kluwer. We do our utmost to be the first to know about all tax news. This is to the maximum benefit of our clients, which is our priority.
A common question from clients is when is the best time to engage us? At the firm, we are prepared to handle a tax dispute from the very beginning. However, the tax audit process can be very lengthy, with a significant portion of the time taken up by handing over and discussing the documents with the tax authorities. Unless the disputes are in the tens of millions of crowns, it seems more economical to engage us only when the tax audit is nearing completion and the tax administrator has presented everything that he or she is accusing the taxpayer of. The handover of the audit findings is therefore the appropriate moment.
This brings us to the genesis of the tax dispute. It starts with a tax audit or a procedure to remove doubts. These procedures usually last 1-3 years and are concluded with the issue of a payment assessment. An appeal is allowed within 30 days, which moves the tax dispute up one level to the Appellate Tax Directorate. It should be added that the filing of an appeal postpones the legal effect and therefore the obligation to pay the tax specified in the payment order.
The Appellate Financial Directorate, as the appellate body for all tax authorities in our country, has recently been inundated with a number of disputes. Therefore, the proceedings before it take about 1 – 2 years. Its decision on the appeal concludes the tax dispute. The tax assessment becomes final and must be paid within 15 days. Otherwise, there is a risk of execution.
Once the tax proceedings are over, the outcome can be challenged before the administrative courts. An action is brought before the regional courts against the decision of the Appellate Financial Directorate within two months of the delivery of the defendant’s decision. Proceedings before the regional courts are usually held without a hearing. The judges have everything they need for their decision. They are provided with the arguments by the applicant and the supporting documents (tax file) by the defendant. The proceedings usually take 1 – 2 years (up to 3 years in Prague). The result is a judgment that either annuls the defendant’s decision or dismisses the action. An appeal against the judgment is admissible to the Supreme Administrative Court.
The proceedings before the Supreme Administrative Court are the imaginary finale. Firstly, it is the last stage of proceedings before the general courts (the Constitutional Court is a special court). But above all, everything is at stake here. We have “stood” before the Supreme Administrative Court more than 100 times, and therefore we can say from our own experience that it is not often that the dispute is completely turned in favor of our clients. Therefore, from the very beginning, it is necessary to take into account that in order to succeed, it is necessary to persevere. The proceedings before this court are similar to those before the regional courts. Unfortunately, due to the heavy caseload of this court, the processing time for individual cases is similar.
It can be summarized that a tax dispute is rarely resolved in the tax proceedings. As a rule, it is necessary to take into account the fact that it is necessary to turn to the courts to defend oneself. Fortunately, the court fees are negligible (in the thousands), and even if unsuccessful, there is no risk of having to pay the tax authority’s costs, which, by contrast, are significant in civil proceedings.
It should be mentioned that the tax proceedings are set in a time frame. Tax can only be checked and assessed within the time limit for assessment. This is generally a 3-year period, but in many cases the tax code builds, extends or interrupts this period. The maximum period of 10 years from the last day for filing the tax return for the relevant tax year is then a sort of uncrossed maximum. Unfortunately, the number of disputes of our clients has recently reached this limit. On the one hand, this is a win in a tax dispute, which is positive. On the other hand, it means 10 years of stress and legal uncertainty, which is a very bad look for tax administration.
Finally, some advice. It is worth remembering that tax disputes are dominated by elements of concentration. This always means a narrowing of the scope for the client’s defense. The first concentration can already be encountered in tax proceedings. In general, procedural errors must be alleged against the tax administration already in the tax proceedings. If the first objection is only raised in the action, it will most likely be rejected for being out of time, even if it is indeed a procedural error.
The second concentration is related to the proceedings before the regional court. The application may be supplemented only during the time-limit for bringing the action. Thereafter, any extension is precluded by law. It is no exaggeration to say that the quality of the application determines the success of the case. An inadequately drafted lawsuit can also lose a tax case where the tax has been assessed illegally.