10 May 2018

Witness testimonies in tax proceedings?

Along with supporting documentation, witness testimonies are the most common and most important means of proof. A tax administrator’s refusal to hear a witness may even lead to the unlawfulness of payment assessments. What are the tax authority’s duties with respect to witness testimonies? May the tax administrator refuse to hear a witness or accept their testimony made within other proceedings? The correct procedure has been discussed by the Supreme Administrative Court (the SAC), as shown in several of its recent decisions.

Jana Fuksová
Josef Riesner

In its recent decision, the SAC emphasised the importance of witness testimonies in tax proceedings: with some exceptions, the tax administrator must hear the testimony of proposed witnesses. For instance, the SAC judges dismissed the argument that all statutory representatives need not be interviewed since they will give the same testimony owing to the similarity of their positions. They also rejected the argument that in one case an excessively long time had passed from the end of the taxable period to consider the witness testimony trustworthy. The SAC instead found that the statutory representative’s testimony may have brought new light into this particular case. The SAC found the tax administrator’s refusal to hear a witness such a serious deficiency that it revoked the tax administrator’s decision for unlawfulness.

A witness testimony is immediate and hard-to-replace evidence, according to another judgment by the SAC, in which it challenged the tax administrator’s decision to accept interview protocols from other tax proceedings instead of hearing witnesses, even despite the fact that the tax entity’s representative was present at a prior interview and could cross-examine witnesses. The court drew attention to the fact that the tax entity’s representative could not have expected that such testimonies would be used in other proceedings as well,  therefore it cannot be assumed that he would have asked questions about circumstances outside the relevant proceedings. Therefore, the the tax administrator must interview witnesses again if the taxpayer asks it to do so. Hearing witness testimonies may prolong the entire proceedings but this fact on its own cannot be taken as grounds for denying the request. The tax administrator may decide not to satisfy the taxpayer’s request only if its sole intention is to obstruct or purposefully extend tax proceedings.

The SAC judgments should remind both taxpayers and tax administrators of the importance of witness testimonies in tax proceedings. The failure to hear witnesses may lead to the revocation of a decision to assess tax. We therefore recommend taking witness testimonies into proper account, since testimonies may in some cases help prove entitlement to VAT deduction or the deductibility of expenses.

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