Czech Republic: A popular instrument of the finance offices, allowing them to review a single VAT return for months, due to the absence of statutory deadlines
Section 89 of the General Fiscal Code endows the financial office with the power to call upon the taxpayer to remove the specific doubts which the financial office may in the individual case have with respect to the accuracy, cogency, and completeness of tax returns or the veracity of the information contained therein.
The finance office makes very frequent use of this option in those cases in which the taxpayer claims a reimbursement of input tax based on its VAT return. As long as the pre-tax repayment does not exceed the level of what is customary for the given taxpayer (judging from previous tax returns), the finance office will usually grant the reimbursement. In the opposite case, the finance office may send the taxpayer a notice within 30 days from the final day of the term for submitting the given tax return, calling upon the taxpayer to remove the doubts. In this notice, the finance office must specify its doubts in detail, so as to allow the taxpayer to take position, explain ambiguities, rectify faulty data, and provide evidence for the accuracy of the submitted data. The finance office then reviews the documentation and information provided by the taxpayer; in this respect, it may solicit additional explanations e.g. from the business partners of the taxpayer. Especially in the case of foreign business partners, this can protract the proceedings considerably. The finance office may also decide to initiate a formal tax audit of the taxpayer.
From the point of view of the taxpayer, the absence of any statutory term in the General Fiscal Code within which such proceedings must come to a close is a serious shortcoming. In practice, it is not at all uncommon for the finance office’s notices to be extremely vague (in contradiction to the statutory requirements), and for proceedings to take months, so that the taxpayer has no choice but to wait until the finance office finally “relents” and returns the pre-tax deduction. Ultimately, the only defense available to the taxpayer against an inordinately protracted procedure is a request for “protection from inaction by the authorities” within the meaning of sec. 38 (2) of the General Fiscal Code, which may be filed with the superior financial authority if three months have passed since the most recent procedural act in the given case.
The current situation is unlikely to improve unless and until the law stipulates a specific time period within which proceedings “on the removal of doubts” must be completed.
Source: General Fiscal Code (Act No. 280/2009 Coll.)
Markéta Pravdová, Attorney, Partner