Time limit for assessing tax in the context of international requests for information
International requests for information affect the time limit for assessing tax. For time limits that started before 2014, this only applies to some taxes. The Supreme Administrative Court’s (SAC) case law deduced that there is a fundamental difference in this respect between VAT and income tax: while for VAT, the international request for information only affects those time limits for assessing tax that started to run in 2014 and later, there is no such restriction as regards income tax.
Effective 1 January 2014, an amendment to the Tax Procedure Code stipulated that for all taxes, the time limit for assessing tax shall not run during a pending international request for information. The amendment, however, did not contain any specific transitional provisions. In the past, the SAC deduced that, as regards VAT, the time limit for assessing tax is a substantive-law one, therefore the new legal regulation shall only apply to those time limits that started to run after the effective date of the amendment, i.e. after 1 January 2014. The time limit for tax assessment that started earlier shall not be affected by any pending international requests for tax information.
An amendment to the Act on International Cooperation in Tax Administration entered into effect at the same time as the mentioned amendment to the Tax Procedure Code. The act had stipulated that the time limit for assessing tax shall not run during a pending international request for tax information; yet this only applied to cases concerning income tax, not VAT. The amendment then introduced specific transitional provisions, based on which the SAC in its recent judgement concluded that as regards income tax, the time limit for assessing tax shall not run during any pending international requests for information regardless of when it started to run.
The issue of the effect of international requests for tax information on time limits for assessing tax has significant practical implications. International requests for information may take months, even years, meaning that any pending tax inspections may be extended by exactly that time, not being limited by the common three-year time limit for assessing tax. If the inspection then results in assessing additional tax, the respective late payment interest will be the higher the longer the inspection lasted.