Suspension of the tax audit in case of international exchange of information – CJEU judgment
On 30 September 2021, the Court of Justice of the European Union (“CJEU”) released its judgment in the case C 186/20 of a Slovak company HYDINA SK s.r.o. The tax authorities started a tax audit at this company, which was then suspended twice due to international exchange of information. CJEU has analyzed the nature of deadlines for provision of information as set out by the Regulation No. 904/2010 and dealt with question of their effect on the lawfulness of suspension of the tax audit. Conclusions of the CJEU are not favorable for the taxpayers who have sought to challenge legality of tax audits and proceedings following the tax audits in cases where international exchange of information was not adhering to deadlines set out by the regulation.
In the tax period of December 2013, the Slovak company HYDINA SK s.r.o. claimed a right to deduct VAT in respect of supplies of meat products based on invoices received from its supplier established in Slovakia.
The Slovak tax authorities started a tax audit for the purpose of establishing the validity of that right and the corresponding claim for reimbursement of excess VAT deduction for that tax period.
The tax authorities twice suspended the tax audit due to requests for information that they had sent to the respective competent authorities of two EU Member States, in accordance with the procedure provided for in Regulation No. 904/2010, with a view to determining whether the goods invoiced to it by the supplier had actually been delivered.
The tax audit was first suspended for the period from 26 August 2014 to 11 March 2015, the second period of suspension was from 20 April to 1 July 2015.
The tax audit was closed on 7 December 2015. The tax authorities have not accepted the company's claim for deduction of input VAT shown in the invoices received from the respective supplier.
The company has challenged the excessive length of the overall tax audit. According to Article 46 (10) of the Tax Procedure Code, the duration of the tax audit may not exceed one year from its commencement. In the present case, the tax audit was begun on 21 March 2014 and closed on 7 December 2015.
It follows from Paragraph 61(5) of the Tax Procedure Code that, in the event of suspension of the tax audit, the time limit laid down in Paragraph 46 (10) of the Tax Procedure Code ceases to run. In this case the tax audit was suspended because of the two requests for information submitted on the basis of Regulation No 904/2010.
The need to obtain information under Regulation No. 904/2010 justifies the suspension of the tax audit. However, under Article 10 of that regulation, read in the light of recital 25 thereof, the requested authorities should provide that information within a maximum of three months from the date of receipt of the request for information addressed to them. In the present case, that time limit was not observed.
The Slovak Supreme Court held necessary to determine the lawfulness of the duration of a tax audit, in particular with regard to the principles of proportionality and legal certainty. Potential unlawfulness could further lead to challenging the VAT assessment decisions adopted by the tax authorities.
CJEU hence dealt with the question on whether Article 10 of Regulation No. 904/2010, read in the light of recital 25 thereof, must be interpreted as laying down time limits, which if not complied with may affect the lawfulness of the suspension of a tax audit provided for by the national law of the requesting Member State, pending the communication by the requested Member State of the information requested via the mechanism for administrative cooperation established by that regulation.
Conclusions of CJEU
Following the analysis of the wording of the Regulation No. 904/2010 as well as the context in which it occurs and the objectives pursued by the rules of which it is part, the CJEU stated that the Regulation No. 904/2010 aims to enable administrative cooperation for the purposes of exchanging information that may be necessary for the tax authorities of the EU Member States.
However, in the absence of any express provision in the regulation to that effect, the latter cannot be interpreted as conferring on a taxable person any specific right.
Moreover, that regulation does not govern the maximum duration of a tax audit or the conditions for suspending such an audit on commencement of the information exchange procedure provided for therein. Therefore, a taxable person cannot rely on that regulation in order to challenge the lawfulness of the suspension of the tax audit to which he or she is subject on grounds of the excessive duration.
CJEU concluded that Article 10 of Regulation No. 904/2010, read in the light of recital 25 thereof is not laying down time limits, the non-compliance with which is liable to affect the lawfulness of the suspension of a tax audit provided for by the law of the requesting EU Member State pending the communication, by the requested Member State, of the information requested under the administrative cooperation mechanism established by that regulation.