Case law
5 March 2019

Retaining undisputed portion of excess deduction held unconstitutional

Last week, the Constitutional Court issued a judgement reversing the Supreme Administrative Court’s negative standpoint to a partial refund of an undisputable portion of excess deductions. According to the Constitutional Court, retaining the undisputed portion of an excess deduction is an unconstitutional infringement on ownership rights. The tax administrators instead have to decide on the undisputed portion of the excess deduction in favour of the taxpayer.

Jana Fuksová

Retaining high amounts of excess VAT deductions on the grounds of a few disputed invoices has been causing troubles and cash flow issues to many a taxpayer. The financial administration argued that the Tax Procedure Code did not give them any other option how to proceed. This was rejected by the Regional Court in Ostrava, which ordered the tax authority to issue a partial tax assessment notice. Contrariwise, the Supreme Administrative Court  sided with the financial administrators: according to its conclusions, the Tax Procedure Code does not allow the tax administrators to issue a partial tax assessment notice, not even upon a taxpayer’s request.

While usually rather restrained in tax matters, the Constitutional Court stepped in this time and held that retaining an undisputed portion of an excess deduction amounting to tens of millions was an unconstitutional infringement on ownership rights. The court did not even wait for the Court of Justice of the European Union to rule on a similar issue submitted to it in May, to see how the issue would be viewed by the EU law. Arguably, the question of constitutionality can be separated from the question of interpretation of European Union law.

Unlike the Supreme Administrative Court, the Constitutional Court did see the possibility to issue a partial tax assessment notice in the Tax Procedure Code, as it allows to assess tax either for a period of time, or for an individual event. And while the Tax Procedure Code does not explicitly mention the possibility of issuing a partial tax assessment notice, nothing prevents it either, according to the Constitutional Court. In fact, a partial tax assessment notice is the only constitutionally-conform option tax administrators have to address such situations. The Constitutional Court also held that such partial tax assessment notices can only be issued in favour of the taxpayers, not against them.


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