Principles of tax administration: free evaluation of evidence and legitimate expectations
Tax proceedings usually involve a large amount of evidence: some is provided by the taxpayer, other by the tax authority. It is on the tax authority to assess the evidence and evaluate its relevance and significance. But can it do so in an arbitrary manner?
Free evaluation of evidence
No tax legislation stipulates that some evidence shall have more weight than other. For example, when you submit photographs in tax proceedings or propose the questioning of a witness, the tax authority may not automatically give them the same weight as it does to accounting documents. It is therefore entirely up to the tax authority to decide what significance to give to each piece of evidence. However, they cannot act arbitrarily; instead, they must always give logical and unquestionable reasons why they consider certain evidence to be more or less relevant/significant than others.
It is also not easy for the tax authority to refuse to take evidence proposed by the taxpayer. They must always justify why they did not do so. Typically, they do not have to take redundant evidence (i.e., where such evidence is intended to clarify facts that have already been reliably established in the proceedings) or evidence that cannot be taken (e.g., the questioning of a deceased witness).
Even if the tax authority considers any of the evidence not to be credible, they must provide convincing and reviewable reasons for its conclusions. The tax authority must assess any evidence both individually and in relation to each other. If they disregard or fail to take any of the evidence, taxpayers may seek remedy, e.g., by appealing to a superior tax authority.
Legitimate expectations
The tax authority must consider not only all the evidence but also decisions made in similar cases, as it is bound by its own decision-making practice that must be consistent, coherent, and constant. Therefore, if the same tax authority has already decided another case of yours with similar features, they should take their earlier decision in that case into account.
However, you cannot rely on the tax authority to automatically consider the decision of another tax authority. At present, there is no common database that would allow the taxpayer to find out how other tax authorities have ruled in similar cases. Therefore, if you know that another tax authority has ruled in favour of the taxpayer in a similar case, it is advisable to draw the tax authority's attention to this in the proceedings and, if possible, provide it with the decision in question.