Financial administration’s employee bonuses for additionally assessed tax criticised by SAC

The Supreme Administrative Court (SAC) commented on the possible bias of tax officers who had assessed additional tax for errors concerning research and development allowances. Early in 2016, the financial administration issued rules on awarding employee bonuses depending on the amount of additionally assessed tax. Although the SAC did not ascertain the tax officers’ bias because the rules on awarding the bonuses had only been issued at the end of the tax inspection, the judgment is still worth mentioning.

One of the objections raised by a taxpayer in a cassation complaint was the bias of the tax officers who carried out the tax inspection. The taxpayer referred to a statement made by the General Financial Directorate’s press secretary, that the financial administration awarded target bonuses to employees who assess additional tax in the area of research and development allowances and transfer pricing.

On 19 February 2016, the General Financial Directorate issued its Conditions for Awarding a Target Bonus. This document states that selected financial administration employees are to receive a target bonus, if, in tax proceedings initiated between 29 February 2016 and 31 December 2018 (or initiated before this date but not completed by 29 February 2016) they reduce the research and development allowances claimed by taxpayers by at least CZK 2.5 million.

In the case in question, the SAC concluded that the tax officers were not biased, as the major part of the tax inspection, including a hearing on the findings, had taken place before the mentioned document was issued. Furthermore, the SAC agreed with the tax administrator that the taxpayer failed to meet the formal conditions for claiming the research and development allowance, namely failed to support the date of the project’s approval.

Notably, the judgement refers to the objective of the tax administration: to correctly ascertain and assess tax and ensure its payment. Tax administrator’s officers should proceed within their powers and jurisdiction. Their motivation should not be distorted by unacceptable remuneration criteria based on the idea that the more tax you collect, the more you earn. According to the SAC, the unacceptability of the regulation is further enhanced by setting a minimum amount by which the allowance was to be reduced.

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