Case law
3 November 2019

The Supreme Court of the Slovak Republic upheld the client’s claim for compensation for VAT retention throughout the long-lasting tax audit

The taxpayer is entitled to the VAT retention interest even when the tax audit, aimed at assessment of eligibility for the excessive VAT deduction, exceeded the period of 6 months and the Tax Office completed the tax audit before 1 January 2017. Furthermore, the Tax Office may not address the taxpayer’s request for the VAT retention interest by a written notice. The Tax Office must issue a decision on such a request and substantiate this decision with proper reasoning. This conclusion stems from the judgment of the Supreme Court of the Slovak Republic.

Marian Dzuroška
Patrik Repka

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Our colleagues from the legal department succeeded in another court litigation. The Supreme Court of the Slovak Republic („Supreme Court“) examined the following

a) existence of the taxpayer’s claim for the interest on retention of the excessive VAT deduction throughout the long-lasting tax audit completed by the end of the year 2016, and

b) court reviewability of the notice, by which the Tax Office denied the taxpayer the VAT retention interest.

In the case in question, the Tax Office initiated the tax audit in order to assess the eligibility for the excessive VAT deduction applied by the taxpayer in the tax return. As the tax audit lasted approximately 17 months, the taxpayer requested the Tax Office to be granted an interest for the excessive VAT deduction retained throughout the tax audit (pursuant to Sec. 79a of the Act on VAT[1]).

The Tax Office addressed the taxpayer’s request by the notice denying the taxpayer the interest, i.e. the Tax Office has not issued a decision in this case.

According to the Tax Office, the taxpayer was not entitled to the interest. The Tax Office argued that the tax audit was completed in 2015 and pursuant to Sec. 85ke of the Act on VAT, the taxpayer is entitled to the interest only in case of tax audit being completed after 1 January 2017.

Conclusions of the Supreme Court

The Supreme Court concluded that the Tax Office’s procedure applied in the decision-making process on taxpayer’s request was incorrect.

1. Entitlement to the interest

Regarding the VAT retention interest, the Supreme Court referred to its earlier decision in a similar legal matter[2]. According to the Supreme Court, the taxpayer is entitled to the VAT detention interest throughout the long-lasting tax audit even if such an audit was completed by the end of 2016.

The Supreme Court emphasized that the claim for the interest stems from the order of the Court of Justice of the European Union[3], which takes precedence over the national provisions of Sec. 85ke of the Act on VAT. Based on this, the ruling applies also to the cases in which the Tax Office retained VAT for a period longer than 6 moths and completed the tax audit by
31 December 2016.

The Supreme Court also stated that it is for the legislature to reconcile the national legislation on retained VAT interest with the order of the Court of Justice of the European Union Kovozber, to allow for granting of the interest even in case of the tax audit being completed before 1 January 2017.

2. The legal nature of the Tax Office’s notice

The Supreme Court confirmed that the Tax Office’s notice is also subject to the court review if it is a measure by which the Tax Office de facto decides on the rights and legally protected interests of the taxpayer.

The Supreme Court also stated that the Tax Office is obliged to decide on the denial of the retained VAT interest and substantiate its decision with proper reasoning. In this regard the Supreme Court emphasized the identical legal matter when the Tax Office issued a decision denying the retained VAT interest (instead of a notice). According to the Supreme Court, the Tax Office is obliged to assess the same matters identically. That is the only way to assure legal certainty and predictability of the decisions of administrative authorities granted by the Constitution of the Slovak Republic. Different course of action of the Tax Office in factually and legally identical matters is, in view of the Supreme Court, unconstitutional.

 

[1] Act No. 222/2004 Coll. on Value Added Tax as amended

[2] Judgment of the Supreme Court of the Slovak Republic dated 17 April 2019, No. 3Sžfk/4/2019

[3] Order of the Court of Justice of the European Union dated 21 October 2015, No. C-120/15 Kovozber

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