When do penalties for additional tax returns arise? How to avoid them?

Generally, no penalty arises if the incorrectly paid tax is corrected in an additional tax return. Unfortunately, the amendment to the Tax Procedure Code effective from 1 January 2021 gives rise to situations where an additional tax return can lead to the occurrence of a penalty. Such situations involve the so-called inadmissible additional tax returns. However, filing inadmissible additional tax returns can be avoided.

The obligation to pay a penalty does not arise where the tax is additionally assessed based on an additional tax return. However, this exception to the obligation to pay a penalty does not apply if the additional tax return is inadmissible, i.e., where it is submitted during the assessment or additional assessment proceedings, or where an extraordinary appeal or court proceedings are pending. The question of inadmissibility and the occurrence of penalties is further elaborated on in the General Financial Directorate’s methodological guidance.

Let us give you an illustrative example. A taxpayer discovers that they have not paid the tax correctly and file an additional tax return by the end of the month following the month in which the error was identified. This situation may repeat itself and the taxpayer may file another additional return for the same period. However, if it is filed before the tax authority has dealt with the first additional return and has assessed the additional tax, the second additional return will be deemed inadmissible. The tax authority will use the information from that return and assess an additional tax for the two additional returns. But the second return will not qualify for the penalty exception. The tax additionally assessed therein will be subject to a penalty of 20 % of the tax additionally assessed and, as in other cases, only 75 % may be waived.

How to avoid an additional return being inadmissible and leading to penalties? Section 141(6) of the Tax Procedure Code offers a solution: the time limit for filing an additional tax return does not run during the period the additional tax return would be inadmissible. In other words, it is necessary to wait until the next additional tax return can be filed. In practice it is therefore necessary to make sure that all pending assessment and additional assessment proceedings have been completed. Here, the tax information box in which tax assessment/additional tax assessment is recorded may be of help. It is also possible to ask for copies of the issued orders to pay tax, but receiving them may take up to 30 days.

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