What interest to claim from tax administrator?

The Tax Procedure Code regulates three types of interest paid by the tax administrator:

• interest on refundable overpayment
• interest on incorrectly assessed tax
• interest on tax deduction.

All such interest is subject to the basic rules according to which interest accrues automatically for each day when the conditions for its occurrence are met. Interest that does not exceed CZK 1,000 shall not be charged, and no obligation to pay it shall arise. Taxpayers may defend themselves against the tax administrator's procedure in connection with the charging and payment of interest by raising an objection.

Interest on a refundable overpayment serves to compensate the taxpayer where the tax administrator delays the refund, use, or transfer of a refundable overpayment. It arises on the day following the day on which the deadline for this transfer has expired, but not in cases when interest on a tax deduction arises for the taxpayer or when the tax administrator delays the payment of the interest itself (i.e., the Tax Procedure Code excludes interest on interest, seen especially in proceedings initiated before the last amendment to the Tax Procedure Code): when the interest charging period ends, the tax administrator credits the interest to the personal tax account and notifies the taxpayer. The interest thus does not automatically become a refundable overpayment, and if the taxpayer wishes to refund it, they must apply for it with the tax administrator. The interest amount is set at the same rate as the interest that would have fallen on the taxpayer in the event of default, currently corresponding to the CNB repo rate plus 8%, i.e., 15% per annum.

On the other hand, interest on incorrectly assessed tax serves as compensation to the taxpayer where the tax administrator has acted unlawfully or incorrectly towards the taxpayer, thus involving a greater misconduct on the part of the tax administrator than just delays. It is based on an unlawfully increased tax, an unlawfully reduced deduction or an unlawful or null securing order. But if the unlawfully assessed tax or tax deduction does not deviate from the tax assertion, the taxpayer is not entitled to this interest. Similarly, the taxpayer will not be entitled to this interest if new facts or evidence subsequently come to light, if the decision was made based on forged documents or a criminal act of the taxpayer, or when determining monetary performance under divided administration (such as fees set by the customs administration). The interest amount also corresponds to the default interest amount and is doubled for the duration of enforcement proceedings.

Interest on a tax deduction serves to compensate the taxpayer where the tax administrator has been examining its excess deduction for an extended period. It arises from the day following the expiry of a period of 4 months from the filing of the tax assertion even if the tax administrator examines the tax deduction quite legitimately. The basis for calculating this interest is the tax deduction determined by the tax authority. However, it does not accrue while the tax administrator is waiting for the taxpayer to act, e.g., after they have been sent a call to remove deficiencies in the submission or asked to comment on the result of the previous finding. Unlike the previous types of interest, the interest on the tax deduction is set only at half the amount of default interest.

Delays by the tax administrator to pay or transfer funds to the taxpayer is not free of charge: legislation allows these funds to be appreciated. Interest accrues automatically by operation of law. However, we recommend that you review its amount and whether it was credited to your personal tax account. Given the current repo rate, individual interest rates can reach interesting levels.

Interest that falls on taxpayers has been discussed in previous articles.