Minimising penalties - how to claim a waiver?

Depending on the results of a tax inspection, a penalty of 20% of the additionally assessed tax or 1% of the amount by which a tax loss was reduced may become due. This amount is fixed, and cannot be reduced by tax administrators on their own. However, the penalty may be waived, up to 75%, based on the taxpayer’s request. In justified cases, the final penalty may thus drop to 5% of the additionally assessed tax or the amount by which the tax loss claimed was reduced. Below we summarise the conditions and procedure for claiming the waiver.

How to apply for a waiver?

The application for a waiver of penalty is subject to an administrative fee of CZK 1,000 (unless the amount to be waived is less than CZK 3,000) and must be filed within three months after the order to pay the additionally assessed tax has entered into effect. This means that if an appeal has been filed against the order, the application shall only be filed once the appeal procedure has been closed. The waiver of the penalty is conditional upon the payment of the additionally assessed tax: the tax does not have to be paid at the time of applying for the waiver, rather at the time when the application is being assessed by the tax authority. At this point, the penalty itself does not have to be paid, but until it is waived, it remains a due and payable liability, which may have negative implications when applying for subsidies, etc. This can be eliminated by applying for a penalty payment deferment on the grounds of the expected waiver. It is also possible to pay the penalty and, once the waiver is granted, apply for a refund of the overpayment; this is necessary, as the tax authority does not refund overpayments automatically.

While the tax authority does not provide a form that should be submitted, it recommends that the application specify who is applying, to whom it is addressed, and what its subject is. A successful application should also contain a rationale stating the arguments for the waiver.

How much can be waived?

When deciding on the application, the tax authority in particular follows General Financial Directorate Instruction D-47. In accordance with the instruction, they first check that the necessary preconditions for granting the waiver have been met. After that, they decide on the amount of the penalty to be waived.

A waiver will not be granted if the taxpayer or its statutory body (typically a statutory representative of a limited liability company or a member of the board of directors of a joint stock company) has grossly violated tax or accounting regulations in the last three years. This means that a waiver will not be granted to ‘unreliable VAT payers’, perpetrators of tax-related crimes, or those who have not filed their tax returns on time two or more times in the last 12 months while being called upon by the tax administrator to do so. 

The amount of the waiver is determined by the extent of the taxpayer’s collaboration in the additional tax assessment. This does not mean that taxpayers should not defend themselves or not be active during the tax inspection. On the contrary, a passive and uncollaborative approach – not responding to calls, not submitting required documents, not allowing the initiation of the tax inspection, concealing evidence –  may result in a lower amount of the waiver: for any such conduct, the amount waived shall be reduced by 20 to 100%.

The last criterion to be assessed is the frequency of breaches of duties in tax administration. This means, for instance, whether the taxpayer has been fined under the Tax Procedure Code two or more times in the last three years, or whether any other tax arrears are being enforced against them. These circumstances reduce the penalty’s waivable portion by a further 50%.

Penalty waivers can be an efficient way to minimise the costs associated with additional tax assessments. The conditions of the waiver have been set up to motivate taxpayers to duly meet their obligations and collaborate during tax inspections. 

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