SAC: Special regulation of period for assessing tax overrides general regulation
The Supreme Administrative Court dealt with the relationship between the general regulation of the period for assessing tax under the Tax Procedure Code and the special regulation of the period under the Income Tax Act in respect of the commencement of a tax inspection for a taxable period for which a tax loss was reported. The heart of the dispute was the question whether when such tax inspection commences a new three-year period under the general regulation stipulated in the Tax Procedure Code begins to run or whether the end of the period for assessing tax is governed by the special regulation stipulated in the Income Tax Act, exceeding the period for assessing tax if a tax loss was reported. The SAC ruled that if a new lapse period begins to run, its duration is governed by the special regulation of Section 38r (2) of the Income Tax Act.
On 25 November 2015, the tax authority commenced a tax inspection concerning the corporate income tax for the 2013 taxable period for which the concerned entity reported a tax loss. The last taxable period in which the entity could claim the tax loss as a deductible item was 2018, and therefore the period for assessing tax ended on the same date as deadline for assessing tax for 2018, i.e. on 1 April 2022 (according to a special provision of the Income Tax Act). However, the entity subject to the tax inspection referred to the general regulation of the lapse period stipulated in the Tax Procedure Code – three years from the commencement of the tax inspection for the relevant period – and claimed that the deadline for assessing tax had already expired on 25 November 2018. Thus it considered the continuation of the tax inspection after this date an unlawful infringement.
Referring to its earlier rulings, the SAC concluded that the regulation of the lapse period in the Income Tax Act shall be treated as a special regulation to the general regulation of the lapse period in the Tax Procedure Code. The provision in the Income Tax Act includes a special rule for determining the end of the lapse period for assessing tax in the event of tax losses. The fact that a tax inspection has been commenced means that the eight-year lapse period under the Income Tax Act starts to run again from the tax inspection commencement date. In the case in question, the lapse period will thus end on 25 November 2023. The SAC also pointed out that the maximum period for assessing tax is generally limited to ten years, in this case thus ending on 1 April 2024.
With reference to its previous rulings, the SAC emphasised that the special regulation of the lapse period for assessing tax only applies to a particular period, not to all periods for which a tax loss was reported. The purpose of this regulation is to enable the completion of the tax proceedings in relation to the relevant taxable period, not in relation to all periods in which tax losses can be utilised. Any opposite interpretations would actually result in the chaining of tax losses, repeatedly rejected by the SAC.