Interest on retained excess deductions after 1 January 2015 – part one
The issue of compensation for unreasonably long examinations of excess deductions has again been raised with the Supreme Administrative Court. This time the court discussed the amount of interest for the period after 1 January 2015 when a 1% interest rate on tax deductions became effective. According to the SAC, the tax administrator may not use this date to split the examination into two phases and reduce the awarded interest in the second period. To the contrary, the tax administrator must award interest of 14% + repo rate on retained excess deductions for the entire period of their examination.
The case in question involved an excess deduction for the December 2013 taxable period. In compliance with the General Financial Directorate’s methodology, the tax authority applied the Kordárna interest (based on the well-known Kordárna judgement) amounting to 14.05% a year until the end of 2014 but proceeded in compliance with the amended Tax Procedure Rules from 1 January 2015, thus awarding only interest of 1.05% a year on the retained excess deduction.
The SAC rejected this procedure, claiming that it was crucial in this particular case that the state was in default in paying the excess deduction before the effective date of the amended Tax Procedure Rules and, therefore, a new interest rate on excess deductions of 1% + repo rate a year may not be applied. Since explicit transitory provisions are non-existent, general rules must be followed, meaning that new interest rate may only be used in respect of deductions whose default in refund occurred after 1 January 2015. As the decisive date for acknowledging the taxpayer’s entitlement to interest occurred before 2015, the taxpayer is entitled to interest on the retained excess deduction of 14.05% over the entire period of default as a result of the tax administrator’s examination of the claimed VAT deduction.
The taxpayer also argued that in accordance with EU regulations, the new 1% interest rate on tax deductions was too low. Unfortunately, the SAC decided not to comment on this, explaining that legislation effective from 1 January 2015 should not have been used in the case at issue at all. We just have to wait for the final decision in this respect.