What to watch out for when making an international request for cooperation in tax proceedings?

Impact on the deadline for tax assessment

The most important consequence of an international request for cooperation is that it affects the deadline for assessing the tax. If this deadline expires, the state can no longer assess the tax for the taxpayer. If an international request is in progress, the law gives the tax administrator more time to assess the tax: the time limit does not run from the date on which the domestic tax administrator sends the request to the foreign tax administrator until the date the requested information is received.

However, the deadline is not always suspended, and taxpayers should therefore be alert when they learn that an international request is in progress. The deadline is not suspended where it is proven that the tax administrator has requested international cooperation without a due purpose or reason, or even solely for the purpose of artificially extending the deadline for tax assessment. It sometimes also happens that the tax administrator becomes impatient and does not wait for a response to an international request; it may appear at first glance that the tax administrator is accommodating the taxpayer, not wanting to unnecessarily burden the taxpayer or prolong the proceedings. The administrator will then issue a decision without knowing whether the foreign tax administrator has already performed the required actions and what follows from them. However, as has been confirmed by the Supreme Administrative Court, the tax administrator's impatience then refutes the reasonableness of the international request. Consequently, the deadline for tax assessment is not suspended in such cases.

And what happens if the tax administrator does not find out anything through an international request for cooperation? This is a bit more complicated because the purposefulness or reasonableness of an international request cannot be judged by its success or factual contribution to the decision on the matter. It always depends on whether the international request had the potential to clarify the relevant facts.

Evidentiary value of documents obtained via an international request for cooperation

Domestic tax administrators should not uncritically adopt the conclusions of foreign tax administrators. They should check whether the foreign tax authority stated in their response how they arrived at their result and from which source. Otherwise, the information obtained from abroad shall have a lower evidentiary value than other evidence. The same applies where the taxpayer is not allowed to attend the examination of a witness abroad. In such cases, the evidentiary value of the information obtained is affected, regardless of whether the foreign law allows the taxpayer to participate in the examination.

Taxpayers should therefore critically review the findings and conclusions that the tax administrator has drawn from the international requests for cooperation. They may alternatively request to see the documents that the tax administrator has obtained from abroad and used as a basis for their conclusions. We describe how to request these documents in our previous article here.