SAC on default interest waivers

In its judgment 4 Afs 311/2021-33, the Supreme Administrative Court (SAC) addressed whether it is possible to grant a taxpayer's request for a waiver of default interest that has arisen from incorrect VAT treatment. The entity themselves actively corrected the mistake by filing additional tax returns and paying the tax. However, the tax administrator classified their conduct as a repeated breach of obligations in tax administration and did not grant the waiver.

The taxpayer, a German company, erred in applying the correct VAT regime to transactions carried out: instead of paying the tax in the Czech Republic, they paid it in Germany. Without being called upon by the tax administrator, they realised the mistake, and took all corrective measures: they retrospectively registered for VAT, filed additional tax returns in the Czech Republic, and paid the tax owed.

Subsequently, the taxpayer applied for a waiver of default interest on the owed tax. However, the tax administrator classified the taxpayer's conduct as a repeated breach of tax regulations and did not grant their application. The case thus proceeded to court.

The SAC agreed with the taxpayer's argument that the waiver of default interest is a privilege for those who cooperate with the tax administrator and act honestly, fairly, and in a sincere effort to correct their mistakes. Therefore, the conduct in the given case should not be equated to that of entities who repeatedly and purposefully fail to cooperate with and thwart the actions of the tax administrator. The court also agreed with the taxpayer's view that their errors constituted a single act, not a repeated breach of tax regulations.

The SAC thus sided with the taxpayer, emphasising their cooperative, honest and fair approach during the proceedings.

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