CLAIM FOR COMPENSATION FOR OVERPAID VAT WITHHELD DURING TAX AUDITS

Effective 1 January 2017, an amendment to Act 222/2004 Coll. on value added tax (Section 79a) allows taxpayers to be compensated for excess VAT not refunded while a tax audit is in progress.

Taxpayers are now entitled to receive “accrued interest on excess VAT” if the tax authorities initiate a tax audit during the period for refunding overpaid VAT and the excess VAT (the negative difference when the outbound VAT due is less than the inbound VAT deducted) has not been paid to the taxpayer more than six months after the refund window expires.

The amendment sets the interest rate as equal to twice the European Central Bank’s base interest rate on the first day of the calendar year in which the interest is calculated. If the interest rate is 1.5% (per annum), that will be the rate used to calculate the interest accrued on the excess VAT.  The tax authorities decide within 15 days of refunding the excess VAT whether interest will be paid thereon and it is calculated for the same period from when the decision enters into effect until the interest should be paid.

The amendment responds to a 21 October 2015 order from the Court of Justice of the European Union in the case of Kovozber, s. r. o. versus Kosice Tax Authority (C-120/15). The Court of Justice ruled in this case that current provisions for the refund of excess VAT (governing the calculation of default interest when excess VAT is refunded after the conclusion of a tax audit) were inconsistent with the principle of fiscal neutrality in the VAT system, where overpaid VAT has to be refunded within a reasonable period. The principle of neutrality under Court of Justice case-law requires, when refunding excess VAT, for a taxable entity’s financial losses owing to the unavailability of the sums of money at issue to be compensated through the payment of default interest. However, the question remains whether the legislature has adequately defined the reasonableness of the period when it allows six months for the audit with no obligation to pay interest to the audited entity.

JUDr. Ing. Vladislav Lichý
Tax Law Expert