Increasingly restrictive measures to secure tax collection
The tax authorities have recently adopted increasingly restrictive measures to collect as much tax as possible. One of these measures is the extended application of securing orders and their subsequent enforcement within a very short time. This, however, is not all.
Securing orders serve to collect funds on the tax authority’s account where the future collection of the estimated tax liability appears to be endangered. Securing orders may be used before the actual tax liability is determined or before a tax inspection is completed, largely depending on the tax authority’s discretion. The deadline for depositing the funds does not exceed three workdays. However, often there is no time for such a voluntary provision of security, as together with issuing securing orders, the tax authorities also freeze bank accounts and attach other assets, especially in VAT-related matters.
According to published tax administration statistics, the number of cases in which the tax authorities decide to enforce taxpayers’ assets based on securing orders has increased dramatically over the last years. We know from practice that the tax administration often tends to target amounts that are incomparably lower than those inspected in the past, focusing also on other taxes than just VAT. These actions, usually undertaken very quickly, may have the effect of paralysing, or even terminating a corporation’s business activities. We have also noticed a growing number of court decisions stating that securing orders were issued and related enforcement was performed unlawfully. The financial administration does not always take these court decisions into account, albeit officially declaring that it proceeds with securing orders with more prudence and that their enforcement is professionally supervised.
The tax authorities also increasingly often issue enforcement orders ordering taxpayers’ debtors or business partners to pay their debt, often a specific invoice, directly to the tax authority’s account. This trend is the result of submitting VAT ledger statements, due to which the tax authorities have gained a better understanding of taxpayers’ business partners and relations.
Practices that we have met with show that the financial administration has begun to proceed very diligently. At the end of tax inspections resulting in additional tax assessments, the tax authorities quite commonly examine the property owned by taxpayers to assess the (non-)fulfilment of the criteria to subsequently issue securing orders. They usually do so irrespective of whether the amount of an additionally assessed tax is insignificant. They usually also examine whether taxpayers have proceeded in compliance with the Act on the Restriction of Cash Payments.
We recommend that taxpayers pay increased attention to their tax matters and, when contacted by the tax authority, continue to communicate and adopt measures to avert or mitigate any negative effects. They should also be more careful when choosing their business partners. And, if necessary, they should be ready to defend their rights before administrative courts.