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Tax administration principles: legality, legal licence, and self-restraint and proportionality

In October's Tax and Legal Update we covered the basic principles of tax administration and why it pays to know them. Today we look in more detail at the principle of legality, the principle of legal licence, and the principle of self-restraint and proportionality.

The principle of legality and the principle of legal licence

Private individuals can do what the law does not prohibit them from doing (the principle of legal licence). However, this principle applies neither to state bodies nor the tax authorities. Instead, their activities are subject to the principle of legality, under which tax authorities can only do what the law expressly allows them to do. In practice, they must abide by the rules of tax legislation and must follow other rules laid down in the Charter of Fundamental Rights and Freedoms, the Constitution, and international treaties. Especially for these regulations, tax administrators should not only pay attention to the wording of the text but also respect its meaning.

Tax administrators therefore must exercise their powers within the limits of the law and for the purposes for which they have been entrusted to them. It is not enough that the tax administrator's action is in accordance with the law, but it should also be consistent with its purpose.

Principle of self-restraint and proportionality

This principle prohibits tax administrators from interfering with the legal position of taxpayers unless they have a legal reason to do so. Moreover, it again underlines the importance of the purpose or objective of the law to be pursued. Finally, it obliges tax administrators to ensure that their action against taxpayers is proportionate to the result they seek to achieve. This is perceived differently by everyone, but if, e.g., the tax administrator initiates a tax inspection by requesting the entire accounting records, including contracts and documents for several years without further explanation, their request is unlikely to be reasonable.

Using the principles to one’s advantage

All these principles can be invoked during the course of tax proceedings, not only where the tax administrator is acting in a manifestly unlawful manner but also where the procedure does not seem proportionate to the objective it is intended to achieve. A breach of one or more of the above principles may result in the unlawfulness of the tax administrator's actions and consequently of their decision. Lastly, it should be noted that where there are several possible interpretations of the law, the tax administrator must proceed according to the interpretation that is most favourable to the taxpayer. You can actively advocate for the use of this procedure during tax proceedings.