In the next article on tax issues, we will take a closer look at the expiration of the right to assess tax, as governed by Section 69 of Act No. 563/2009 Coll. on Tax Administration (the Tax Code), as amended (hereinafter referred to as the “Tax Code”).
According to the Tax Code, tax may be assessed in three ways, specifically:
- by a decision of the tax administrator,
- by filing a tax return, including an amended tax return,
- by paying the tax where there is no obligation to file a tax return.
The right to assess tax is subject to a time limit in the form of a statute of limitations. This means that the authorized entity may assess tax only within the period prescribed by law; upon its expiration (lapse), the right ceases to exist. The tax office must take the expiration of the statute of limitations into account ex officio, even if the taxpayer does not object to the lapse. If, after the right to assess tax has lapsed, one of the three aforementioned acts—which would otherwise result in the assessment of tax—is performed, that act will have no legal consequences and no tax will be assessed. The question is, within what time limit can tax be assessed?
Pursuant to Section 69(1) of the Tax Code, a tax or tax difference may not be assessed, nor may a claim for an amount under special regulations be asserted, after the expiration of five years from the end of the year in which:
- the obligation to file a tax return arose
- the taxpayer was required to pay tax without the obligation to file a tax return
- the taxpayer became entitled to claim an amount under special regulations.
In the case of a taxpayer claiming a tax loss deduction, tax or a tax difference cannot be assessed after the expiration of seven years from the end of the year in which the obligation to file a tax return arose and in which this tax loss was reported.
Example 1: A taxpayer filed an income tax return for 2018 on February 23, 2019. For income tax, the tax period is one year, and the tax return for 2018 had to be filed by March 31, 2019, or by June 30, 2019, if an extension was requested. The five-year period began to run for the taxpayer from the end of the year in which the obligation to file the tax return arose, i.e., from December 31, 2019. The tax authority may assess income tax until December 31, 2024.
Example 2: The taxpayer filed a value-added tax return for the month of February on March 23, 2021.
For value-added tax, the basic tax period is the calendar month, and the tax return for February must be filed by March 25, 2021. The five-year period begins at the end of the year in which the obligation to file a tax return arose, i.e., from December 31, 2021. December 31, 2026, will be the last day on which tax may be assessed.
However, the aforementioned 5-year period may be extended if a tax audit is conducted against the taxpayer or if a tax assessment procedure based on auxiliary data is carried out pursuant to Section 48 et seq. of the Tax Code.
In these cases, the end of the period is extended if an act aimed at assessing tax or a tax difference, or at claiming an amount under special regulations, was performed before the expiration of the original tax assessment period. The following are considered such actions under the law:
- delivery of a tax audit report,
- delivery of a report on tax assessment based on auxiliary data,
- drafting of a record of the commencement of a tax audit, delivery of a notice of a tax audit (if the tax audit is conducted at the request of criminal justice authorities or police authorities).
If such an act is performed by the competent tax administrator in a timely manner, the time limits for assessing the tax (five-year, seven-year) run anew from the end of the year in which the taxpayer was notified of this act. At the same time, however, a maximum objective limitation period applies for the right to assess tax or a tax difference or to claim an amount under special regulations, namely ten years from the end of the year in which:
- the taxpayer became obligated to file a tax return,
- the taxpayer was obligated to pay tax without being required to file a tax return,
- the taxpayer became entitled to claim an amount under special regulations.
Within the ten-year period, tax or a tax difference may be assessed, or a claim for an amount may be asserted under special regulations, when applying international tax treaties to which the Slovak Republic is bound.
Example: A taxpayer filed a corporate income tax return for 2014 on February 23, 2015, in which they reported income and calculated the amount of tax liability, which they withheld and paid. The statutory obligation to file a tax return for the relevant tax period arose for the taxpayer on March 31, 2015. The five-year period for assessing any tax difference for this taxpayer expires on December 31, 2020 (5 years from the end of 2015). On January 26, 2020, the tax administrator initiated a tax audit of the taxpayer, the subject of which is income tax for the year 2014.
The tax audit report was delivered to the taxpayer on January 15, 2021, containing findings that result in the calculation of a tax difference, which should be assessed against the taxpayer in subsequent assessment proceedings. Although the tax administrator completed the tax audit within the statutory one-year period, the deadline for assessing the tax difference had already expired before the tax audit report was delivered; that is, the right to assess the tax, or the tax difference, had lapsed. For this reason, any assessment proceedings aimed at assessing the tax difference on corporate income tax for 2014, as well as any decision issued therein, would be unlawful. The reason for the illegality would be the actual expiration of the tax administrator’s right to assess the tax in question, or the tax difference, to this taxpayer.
Example 2: However, if (in the previous example) the tax administrator delivered the Protocol to the taxpayer on December 29, 2020, the limitation period for the right to assess the tax would begin to run again from the end of the year in which the protocol was delivered to the taxpayer, i.e., from December 31, 2020, for a period of another five years. The tax administrator could thus assess tax against the taxpayer for the 2014 tax period until December 31, 2025, when the maximum ten-year period for assessing tax, or the tax difference, or for claiming an amount under special regulations, will also expire.
Special provisions resulting from legislative amendments during the pandemic period (Lex Corona):
In connection with the ongoing coronavirus pandemic, measures were adopted through Act No. 67/2020 Coll. on Certain Extraordinary Measures in the Financial Sector in Connection with the Spread of the Dangerous Contagious Human Disease COVID-19. Pursuant to Section 9 of the aforementioned Act , the statute of limitations for the right to assess tax is suspended during the pandemic period. On September 29, 2020, an amendment to Act No. 67/2020 Coll. entered into force, pursuant to which the period from March 12, 2020, to September 30, 2020, is considered the pandemic period for the purposes of the measure under Section 9.
As of November 1, 2020, the limitation periods for the right to assess tax have resumed.
From the wording of the explanatory memorandum to the aforementioned Section 9 of Act No. 67/2020 Coll., which states that “To prevent the adoption of all measures during the pandemic from resulting in the expiration of the right to assess tax, the statute of limitations on the right to collect tax arrears, and the expiration of the right to collect tax arrears, it is provided that the running of these time limits shall be suspended for the duration of the pandemic.”, it can be inferred that the time limits did not run during the pandemic period and that after the end of this period, i.e., from October 1, 2020, the running of all original time limits, extended by the duration of this suspension, continues.
Extinction of the right to assess tax in relation to Section 71 of the SSP
Section 71(1) of the Administrative Court Procedure Code provides that if a special regulation governing misdemeanors, disciplinary offenses, and other administrative offenses sets time limits for the expiration of liability or for the enforcement of a decision, these time limits do not run during proceedings under the Administrative Court Procedure Code.
In the context of the running of time limits for the extinction of the right to assess a tax, the decisive factor is that the above applies mutatis mutandis to time limits for the extinction of rights in matters of taxes, customs duties, fees, and levies that constitute revenues of the state budget, the European Union budget, public funds, and the budgets of municipalities, cities, city districts, and self-governing regions.
The purpose of the aforementioned provision is to ensure that, in the event of the revocation of a tax administrator’s decision and the remand of the case for further proceedings and a decision, the expiration of the statute of limitations does not prevent the tax administrator from acting and deciding on the matter. The service of an administrative complaint on the administrative court thus causes the period to be suspended, and the suspended period will resume running from the day following the date on which the regional court’s decision on the filed administrative complaint becomes final.
In its precedent-setting decision (R 69/2019), the Supreme Court of the Slovak Republic had to address the argument of a taxpayer who contended that, in the case of proceedings under Sections 250l through 250s of the Code of Civil Procedure (currently Sections 177 through 193 of the Code of Civil Procedure),
the tax administrator is not entitled to suspend tax proceedings; therefore, the statute of limitations did not suspend during the court proceedings, and the right to assess the tax expired due to the lapse of the 5-year statute of limitations.
In the reasoning of its decision, the Supreme Court pointed out that “the general provisions of Title I of Part V of the Code of Civil Procedure also apply to proceedings under Title III of Part V of the Code of Civil Procedure, specifically Section 246d of the Code of Civil Procedure, the wording of which implies that if a special law establishes a limitation period for the extinction of a right, inter alia, in matters of taxes constituting revenue for the state budget, such periods do not run during proceedings under Part Five of the Code of Civil Procedure. For the sake of completeness, the Court of Cassation emphasizes that the provision of Section 246d of the Code of Civil Procedure has essentially been incorporated into Section 71(1) of the Administrative Court Procedure Code. Therefore, the complainant’s assertions that, under the previous procedural framework pursuant to the OSP, the time limits for tax assessment did not apply in the event of judicial review are misleading and legally irrelevant. For these reasons, the complainant’s objections regarding the lapse of the relevant 5-year time limit for tax assessment on the grounds that the tax administrator “failed to take into account the suspension of the time limit” during the previous judicial review under the OSP are also legally irrelevant. Such a defense by the complainant finds no support either in the previous procedural legal framework or in the current procedural framework enshrined in the Administrative Court Rules.”
It is clear from the above that the Supreme Court used general reasoning in the grounds for its decision, applicable to all time limits, without specifically stating that the individual time limits in § 69 of the Tax Code “behave” , from which it may be inferred that during proceedings under the SPP, neither the 5-year statute of limitations under Section 69(1) of the Tax Code nor the objective 10-year period under Section 69(2) of the Tax Code runs. We therefore hold the view that the provision of Section 71(1) of the SSP applies generally to the time limits for the extinction of the right to assess tax under Section 69 of the Tax Code.
In support of this assertion, we note that a similar legal provision is found in Section 41 of the Czech Code of Administrative Procedure, which is interpreted generally by Czech courts and applied to all time limits set forth in tax procedural regulations.
When assessing whether the statute of limitations for the right to assess tax has expired in a specific case, it is therefore necessary to rely not only on the provisions of the Tax Code but also to take into account the legal provisions contained in the Administrative Court Procedure Code. This was also confirmed by the Supreme Administrative Court of the Czech Republic in its decision under file no. 1 Afs 9/2008, according to which: “It can be clearly inferred from the above that the time limit for assessing (reassessing) tax cannot be calculated solely according to the Tax Code, but in the case of court proceedings, it is also necessary to take into account the provisions of the Administrative Court Procedure Code: during the course of court proceedings, the three-year period for tax assessment (additional assessment) is suspended and its course resumes only after the final conclusion of the proceedings before the court. Since this involves a suspension of the time limit (not an interruption, where the time limit runs from the beginning after the obstacle ceases to exist), the portion of the time limit that elapsed before the commencement of the court proceedings and the portion that elapsed after it are added together.”
The law firm Hronček & Partners, s. r. o. has extensive experience representing clients in tax audits involving various types of taxes, where it assists taxpayers in defending and asserting their rights and protecting their interests against incorrect or unlawful actions by public authorities. In the area of tax matters, we work closely with a recognized tax expert, tax advisor Ing. Mgr. Martin Tužinský, PhD. If you are facing a tax-related issue and need assistance, our experts are ready to lend you a helping hand.
