Ways to quicker excess VAT deduction refunds
Excess VAT deductions retained by tax administrators cause cash-flow problems to a large number of corporations. When claiming refunds of excess deductions amounting to millions of Czech crowns, taxpayers often have to wait a long time for the results of their tax administrators’ examination of a few disputable invoices. An elegant solution is at hand, however: a partial tax assessment and a refund of the indisputable part of an excess deduction. This would help taxpayers and, simultaneously, would not threaten the state administration’s interests. However, the financial administration believes that this option is currently legislatively infeasible. Or is it?
A recent decision of the Regional Court in Prague (48 Af 21/2016) has raised our hopes as it finds a solution without changing any laws. In the given case, after the tax authority itself acknowledged in its records that a substantial portion of the excess VAT deduction at issue was actually indisputable, the judges imposed the duty to issue a partial payment order for that particular amount on the tax authority. The neutrality of VAT was a major point in the court’s reasoning. However, the court also drew attention to the fact that VAT payers must know that a partial payment order may result in a tax obligation, typically where VAT on input relating to invoices under review is higher than the total excess deduction for the period. Here, one unanswered key question arises as to whether it is possible to issue a partial payment order without a tax entity’s application. The case in question has not yet ended as it awaits an examination by the Supreme Administrative Court.
Meanwhile, the financial administration continues to refuse issuing partial payment orders and, following the example of their Slovak colleagues, is calling for a general introduction of tax self-assessment that has already been introduced as a pilot project with respect to the administration of the newly established gambling tax. The self-assessment system, planned to be in effect from 2020, represents an automatic assessment of tax based on filed tax returns. Procedures to remove doubt and pre-assessment inspections resulting in the retention of excess deductions will therefore be irrelevant. At first sight, this seems like a simple and elegant solution. But, looking more closely, a number of hidden issues come to the fore. All activities associated with the examination of a tax entity’s tax obligations by the tax authority will automatically be connected with a 20% penalty on the additionally assessed amount. Taxpayers will no longer be able to ask for a discussion of a disputable tax issue without penalisation before the tax assessment itself; this process to a certain extent had been used as a replacement of the abolished possibility to appeal against one’s own tax return.
Ways to a quicker refund of an indisputable part of the retained excess VAT deduction do exist. If your company’s cash flow is hampered by long-retained excess deductions, we will be happy to assist you in deciding whether the filing of an application to issue a partial payment order could help with your particular situation.