Case law
5 March 2019

Punishment in tax

In a recent judgement, the Supreme Administrative Court confirmed that a penalty for late filing of a tax return is by its nature a penal sanction. Therefore, when imposing the penalty, a later legal regulation shall be applied if more advantageous for the “offender”, regardless of explicit transitory provisions. In practice, this may mean reducing the penalty down to a tenth.

Jana Fuksová
Petr Janíček

In case No. 9 Afs 197/2018, the Supreme Administrative Court dealt with an individual who had very little capital income apart from income from employment. Yet, because of this capital income, they had the duty to file a tax return, which they did with a two-year delay. The heart of the dispute with the tax administrator was the amount of penalty for a late assertion of tax: in the meantime, a new, more lenient legal regulation had started to apply, reducing the penalty to one tenth in similar cases. However, transitory provisions clearly stated that the milder sanctions shall only apply to tax liabilities for taxable periods after the effective date of the amendment.

First, the court had to establish whether the penalty for late tax assertion by its nature was a penal (criminal) sanction. Here, the court concluded that the purpose of the sanction is repressive and deterrent, as it is meant to be a punishment for conduct contrary to law. It is not a compensation of damage incurred by the state as a result of tax being paid late – this is the case of late payment interest, which is hence not considered a penal sanction.

The penalty for late tax assertion therefore has to be governed by the constitutional principles governing punishment, ensuing, among others, from the Charter of Fundamental Rights and Freedoms. Similarly as before for tax penalty, the Supreme Administrative Court confirmed that the fundamental principles prevail over the wording of the law. In the case in question, the principle of applying the later legal regulation in favour of the taxpayer shall therefore apply, despite the explicit wording of the transitory provisions of the Income Tax Act. For the taxpayer in this concrete case, this means a reduction of the penalty by 90%. Although a mitigation of this scale is only possible for individuals whose income from employment accounts for more than one half of the income tax base, the judgment still confirms, yet again, that principles of imposing penal (criminal) sanctions also apply to tax sanctions.

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