In its judgment 4 Afs 425/2021-40, the Supreme Administrative Court (“SAC”) dealt with a dispute between an individual (“the plaintiff”) and the Appellate Financial Directorate (“the defendant”) concerning the assessment of the possibility of extending the deadline for filing a tax return by virtue of a power of attorney granted to a tax advisor, where the tax return had previously been filed by the taxpayer itself within the three-month deadline.

The dispute arose from the actions of the plaintiff, who, on 28 March 2018, submitted to the tax office a proper personal income tax return for the taxable period of 2017, in which he calculated his tax liability in the amount of CZK 76,245, and then, on the same day, sent to the tax office a power of attorney granted to a tax adviser to prepare and submit a personal income tax return. The tax administrator assessed the plaintiff’s tax according to its claimed amount of CZK 76,245, whereupon, on 26 June 2018, the tax advisor filed another proper tax return, in which she calculated the tax liability in the amount of CZK 79,890. However, the tax administrator considered the tax return sent by the tax consultant as additional, taking into account the fact that the plaintiff had already filed a proper tax return. As a result, the plaintiff appealed to the tax administrator, claiming that the payment order issued by the tax administrator contained an incorrect tax base, tax and assessment date, because granting a power of attorney to the tax advisor and its application at the tax administrator on 28 March 2018 extended the deadline for filing the tax return.

The judgment of the Regional Court agreed with the plaintiff’s interpretation, which states that the key fact is the timely exercise of the relevant power of attorney granted to the consultant before the expiry of the three-month time limit under Article 136(1) of the Code of Tax Procedures (“the Tax Code”). The plaintiff’s argumentation further refers to Section 136(2) of the Tax Code, which does not expressly provide for a condition where a tax return has not yet been filed – that is, the filing of the relevant power of attorney granted to the tax advisor causes automatic activation of the six-month time limit for filing a tax return, even if the subsequent tax return prepared and filed by the tax advisor took the form of an amended tax return. In view of the imprecise wording of Section 136(2) of the Tax Code, there is no contradiction if a proper tax return had been filed and the power of attorney granted to the tax advisor is subsequently timely exercised.  By doing so, the taxpayer only indicates that it intends to activate the six-month period. Thus, according to the Regional Court, the tax administrator acted unlawfully when it assessed the tax by default already on 10 April 2018 and rejected the plaintiff’s appeal against the payment assessment. In this respect, according to the Regional Court, the will of the tax subject is absolutely essential and the tax administrator must respect it to the maximum extent possible.

Conclusions of the SAC

The defendant disagreed with the conclusions of the Regional Court and filed a cassation complaint with the Supreme Administrative Court. In the cassation complaint under review, the SAC contradicts the conclusions of the Regional Court and states that the taxpayer fulfilled the act of filing the tax return within the three-month period for filing the tax return, and therefore the later filing made only within the six-month period by the tax advisor could not be considered as a proper tax return, from which the time limit for filing an amended tax return within the meaning of Section 138(1) of the Tax Code as amended would derive.

However, if a proper tax return had already been filed within the three-month period provided for in Section 136(1) of the Tax Code, an amended, tax return could subsequently be filed only until the end of that period (by the taxpayer or tax advisor), since the six-month period laid down in the second paragraph of the Tax Code applied, subject to other conditions, only to cases where the income tax return for the relevant taxable period was filed for the first time after the expiry of the three-month period.

The exercise of the power of attorney granted to the tax advisor to file the tax return before the expiry of the three-month period protected the taxpayer from any penalty for late filing of a proper tax return and therefore there was no need to file the tax return first within this shorter period and replace it with a tax return prepared by the tax advisor after its expiry.

In the opinion of the SAC, the interpretation leads to an unambiguous conclusion that it is impossible for a tax advisor to prepare and file an amended personal income tax return within the six-month time limit set out in the relevant wording of Section 136(2) of the Tax Code in a situation, where a tax return has already been filed by the end of the three-month period after the end of the taxable period. It is therefore not possible to conclude, applying the principle of 'in dubio pro mitius', that the taxpayer was entitled to such a right.

Therefore, in the case under review, the tax administrator acted correctly in assessing the plaintiff’s tax liability by default on the basis of the information provided in his tax return of 28 March 2018 and in treating the filing of 26 June 2018 prepared by the tax advisor as an additional tax return within the meaning of Section 141 of the Tax Code.

Author: Roman Burnus, Marek Toráč