We have provided basic information about tax audits, the definition of a tax audit, who is authorized to conduct a tax audit, and how the audit itself begins and ends in our article “Taxes”: 1. Tax Audits and Assessment Proceedings – A General Introduction. We believe that successful preparation for a tax audit depends primarily on having sufficient information and processing it professionally. In the following article, we will therefore discuss the concept of representation in a tax audit based on a power of attorney.
“Vigilantibus iura scripta sunt” – the law is on the side of the vigilant.
According to data from the Financial Administration, the effectiveness of tax audits increases every year, which is why it is important not to overlook anything during a tax audit. In 2018, the aforementioned effectiveness of tax audits reached approximately 70%. In numbers, this means that in 2018, out of 7,916 audits conducted, 5,469 resulted in findings. For 2019, this number was even higher, with the effectiveness of tax audits rising to 75%. Value-added tax is considered one of the highest-risk taxes in Slovakia in terms of tax evasion. In 2019, VAT audits accounted for 58.3% of the total number of audits, with VAT findings amounting to more than €400 million. Corporate income tax is the second most audited tax, and the findings for this tax in 2019 amounted to more than €300 million.
Who can be represented by power of attorney in tax proceedings?
The following are authorized to grant power of attorney for representation:
- a taxpayer,
- the legal representative of a taxpayer (a parent of a minor taxpayer, provided that the parent is legally competent and has not been deprived of parental rights; an adoptive parent of a minor taxpayer),
- a court-appointed guardian of a taxpayer.
Representation in tax administration is governed by Section 9 of the Tax Code. Pursuant to this provision of the Tax Code, any taxpayer (as well as the taxpayer’s legal representative or a court-appointed guardian) may be represented by power of attorney at any stage of tax proceedings. A taxpayer may grant a power of attorney for representation at any time, i.e., even after receiving notice of a tax audit, or even during the course of the audit.
To whom can I grant a power of attorney for representation in tax proceedings?
During a tax audit, you may grant a power of attorney to both a legal entity and a natural person. The law does not specify any particular conditions for the representative; thus, it is left to the discretion of the taxpayer to decide to whom they grant a power of attorney for representation in tax proceedings. The person to whom the taxpayer grants power of attorney must have full legal capacity. If a natural person lacks legal capacity, they cannot act as a representative; therefore, if power of attorney were granted to them, it would not be valid.
If the representative of the taxpayer is a legal entity, its statutory body or a person authorized by the statutory body acts on its behalf. Provided that this is evident from the content of the power of attorney granted, another person to whom the representative grants a power of attorney for such acts (a so-called “substitute power of attorney”) may also act as a representative (but only if the representative is a tax advisor or attorney). The actions of the substitute within the scope of the power of attorney are then considered to be the actions of the representative. However, the representative may not grant a general power of attorney to the substitute, given the delivery conditions set forth in Section 30(3) of the Tax Code, according to which, if the addressee has a representative with a power of attorney for tax administration purposes, the document is delivered only to that representative.
The Tax Code stipulates that a taxpayer may have only one representative in the same matter. This means that a taxpayer may have multiple representatives with the same tax administrator, but in different matters; thus, there must be no overlap in the scope of the powers of attorney granted. In practice, this means that one representative may be authorized, for example, to file VAT returns, while another representative may be authorized to file tax returns for other taxes.
Power of Attorney – Form and Content Requirements
A power of attorney for representation in a tax audit is granted either in writing or orally, with the tax administrator recording it in the minutes. When a power of attorney is granted orally, the tax office prepares minutes that must contain the statutory requirements specified in Section 19 of the Tax Code. The power of attorney must clearly state who is granting the power of attorney (the principal), to whom this power of attorney is granted (the agent), and the scope of the power of attorney, or its time limit, if applicable. In practice, deficiencies often occur when a legal entity grants a power of attorney. If a legal entity grants the power of attorney, the principal is not its managing director as the company’s statutory representative, but the legal entity on whose behalf the managing director or statutory representative registered in the Commercial Register acts.
An officially certified signature is not required on the power of attorney.
If a taxpayer grants a power of attorney to a representative who has permanent residence or a registered office outside the territory of the Member States of the European Union and the states that are parties to the Agreement on the European Economic Area (i.e., Liechtenstein, Iceland, Norway), the representative is required to appoint a representative for service of process with permanent residence or a registered office within the territory of the Slovak Republic. If this requirement is not met, documents will be deposited with the tax administrator, in which case the documents will be deemed served on the date of their issuance. A similar obligation—namely, to appoint a representative for service of process, with the same effects of service—applies to a taxpayer who is subject to registration and simultaneously has a permanent residence or registered office outside the territory of a Member State of the European Union. This procedure is intended to ensure smooth operational communication between the tax administrator and the taxpayer, or their representative.
Scope and Effectiveness of the Power of Attorney
The representative acts on behalf of the taxpayer within the scope of the granted power of attorney (general / special / individual), and if the scope is not expressly defined, the power of attorney is deemed to be general, meaning that the representative is authorized to represent the taxpayer in all matters concerning the taxpayer in connection with their tax obligations.
To eliminate any doubts regarding the effectiveness of the power of attorney, the Tax Code stipulates that the power of attorney takes effect vis-à-vis the tax administrator from the date of its delivery to the tax administrator – in the case of a written power of attorney; and in the case of an oral power of attorney, it becomes effective against the tax administrator from the date of its recording in the tax administrator’s minutes.
Once the power of attorney for representation vis-à-vis the tax administrator takes effect (in the case of a general power of attorney), the tax administrator will deliver all documents related to the tax audit directly to the representative. Likewise, communication regarding the tax audit will take place between the tax administrator and the tax entity’s representative until the tax audit is concluded, i.e., until the date of delivery of the tax audit report. However, the power of attorney granted to the representative does not prevent the taxpayer from communicating with the tax administrator, nor does it in any way restrict the taxpayer, for example, in the submission of filings. If the taxpayer performs an act on their own, even though they have granted a general power of attorney to a representative, this does not mean that the tax administrator will not accept the taxpayer’s action.
The representative’s legal acts are an expression of their will, but the legal consequences (rights and obligations) arise directly for the person being represented (the taxpayer).
Dealing Directly with the Taxpayer
A taxpayer who grants power of attorney to a representative for representation in tax proceedings generally does not need to participate in the tax audit in person. However, the fact that the taxpayer, their legal representative, or their guardian chooses a representative does not prevent the tax administrator from performing certain acts directly with the taxpayer. The Tax Code grants the tax administrator the authority (not the obligation) to act directly with the taxpayer in necessary cases or to request that the taxpayer perform certain actions, even if the taxpayer is represented by a representative based on a general power of attorney. The taxpayer is obligated to comply with such a request from the tax administrator, and the tax administrator is obligated to notify the taxpayer’s representative of such action.
What if both the taxpayer and their chosen representative are acting in the same matter?
In a situation where both the taxpayer and their appointed representative are acting in the same matter and their actions conflict with each other, the tax administrator respects the actions of the taxpayer themselves.
Representation of Taxpayers Before a Single Tax Administrator
A representative of a taxpayer, a tax advisor, and an attorney may represent an unlimited number of taxpayers before a single tax administrator. However, the tax administrator and the second-instance authority are authorized to exclude a representative from tax administration if there is a conflict of interest with other taxpayers in the exercise of rights and fulfillment of obligations under the Tax Code. This authority of the tax administrator to exclude a representative from tax administration does not apply if the representative is a tax advisor or attorney.
Termination of Power of Attorney
The Tax Code does not regulate the methods of termination of a power of attorney in its relevant provisions. These are regulated in Section 33b of the Civil Code, according to which a power of attorney terminates:
- upon the performance of the act to which it was limited,
- if the principal (the represented taxpayer) revokes it,
- if the agent (representative) terminates it,
- upon the death of the agent (representative)—if the agent is a natural person,
- upon the death of the principal (the represented party)—if the principal is a natural person and only if nothing to the contrary is implied by the terms of the power of attorney,
- upon the dissolution of the legal entity that is the agent (representative)—only if the rights and obligations of that legal entity do not pass to another person,
- upon the dissolution of the legal entity that is the principal (represented party) – only if the rights and obligations of this legal entity do not pass to another person.
It follows from the provisions of Section 33b of the Civil Code that in the event of revocation of the power of attorney (a unilateral legal act by the principal), such revocation is effective against the agent from the moment the agent becomes aware of it. Legal acts performed by the agent prior to this time are binding on the principal.
The Tax Code separately regulates the effectiveness of the revocation of a power of attorney as well as the termination of a power of attorney by the representative vis-à-vis the tax administrator, whereby both the termination and the revocation of the power of attorney are effective from the date of their delivery to the tax administrator or from the date of recording these facts in the minutes at the tax administrator’s office.
In the event that the principal dies, or if the representative terminates the power of attorney, the representative is obligated to take all necessary and urgent actions to ensure that the principal, or their legal successor, does not suffer any prejudice to their rights. Based on this fact, if the representative performs any action that cannot be postponed to prevent the represented party from suffering harm to their rights, the tax administrator will accept this urgent action (e.g., discussing comments and evidence following an audit).
Why be represented by professionals during a tax audit?
Professional representation during a tax audit, such as that offered by the law firm Hronček & Partners, is standard practice for larger companies, and we also recommend that other business owners seek representation by experts, as professional representation ensures peace of mind and, above all, the certainty of expertise and professional knowledge of tax matters as well as procedural law. Missing a deadline in tax proceedings, omitting certain essential steps during a tax audit, or failing to submit relevant evidence may result in the tax administrator imposing additional taxes at a later date, or sanctions may be imposed. The institution of representation is therefore an important one within the framework of tax administration. Its use allows the taxpayer to fully focus on their business activities, while contact with the tax authority is handled by their representative, to whom the taxpayer has granted power of attorney. Further information on tax proceedings and representation in tax audits can be found in our previous articles (1, 2) and in the Services section.
