If, contrary to the law, the Tax Administrator delays assessing interest on unjustified conduct, the taxpayer is entitled to further interest on these interests. This conclusion follows from the headnote to the above-mentioned ruling of the Supreme Administrative Court.

The story, where one of the parties is Elektrárna Opatovice, a.s. (hereinafter “Elektrárna”) and the other the Financial Office in Pardubice, begins in the year 2011. In this year, Elektrárna acquired emission permits free of charge, from which it paid gift tax in the amount of nearly CZK 175m. The story has three acts, each concluded with a litigation.

Act One begins on 2 March 2013, when Elektrárna submitted an additional tax declaration for the gift tax. In this tax declaration, the company adjusted the original amount of returned tax to zero. The Tax Administrator did not agree with the additional tax declaration submitted by Elektrárna and on 2 July 2013 with an additional payment order, it assessed a difference reaching zero, thus confirming the tax as assessed according to the regular tax declaration. In this dispute, the question was, if imposing gift tax on gratuitous acquisition of emission permits is not contrary to EU Directive no. 203/87. After a cancelled appeal on the part of the Appellate Financial Directorate in Brno, the Regional Court in Hradec Králové cancelled the decision and returned the matter for further proceeding. In the subsequent proceedings, the appellate authority amended the additional payment order in accordance with the decision of the Regional Court and an overpayment of nearly CZK 103m thus incurred for Elektrárna. Hradec Králové Regional Court proceeded according to the case-law of the Supreme Administrative Court referring to the solution of a preliminary question, which the SAC submitted to the Court of Justice of the European Union (file no. 1 Afs 6/2013) in a different dispute. Based on this case-law, the regional court reached the conclusion that if the acquisition of more than 10 % of emission permits is taxed in the energy sector, the legal regulation of the gift tax for gratuitous acquisition of emission permits is in conflict with the given EU directive. It follows from the answer of the Court of Justice of the European Union to the preliminary question, a maximum of 10 % of emission permits assigned in a five-year period in the energy sector may be subject to the gift tax as a fee for assignment of emission permits. Taxation of gratuitous acquisition of a number of emission permits exceeding the 10% level would be in conflict with the requirements of the directive.

Act one therefore ends successfully for Elektrárna on 14 December 2015, when the Tax Administrator credited the entire due amount of CZK 103m to its bank account.

In Act Two, interest on grounds of unjustified conduct of the Tax Administrator was the main theme. On 28 December 2015, Elektrárna submitted an objection, according to which the Tax Administrator did not assess interest on his own unjustified interest in the amount of CZK 35.4m. This is because the Tax Administrator withheld the amount of CZK 103m without justification from 3 July 2013 to 14 December 2015 and did not credit it to Elektrárna. The Tax Administrator rejected the objection submitted by Elektrárna, referring to the option of claiming compensation of damage under the Act on Liability for Damage caused by an unlawful decision or an improper official procedure in the exercise of public authority, by means of a civil lawsuit. Two years later, on 5 February 2018, Elektrárna submitted a second request for payment of interests, with regard to the development of the case-law of the Supreme Administrative Court (decision no. 2 Afs 148/2017-36 from 14 December 2017). Based on this request, the Tax Administrator credited interest on unjustified conduct in the amount of CZK 35.4m to the bank account of the company, on 24 January 2019. Act two ended up well for Elektrárna, too, and the company received interest on the withheld overpayment in its account.

History favours the brave and well-prepared. Act Three, which is the most interesting one from the tax perspective, confirmed this. On 15 February 2019, Elektrárna submitted another objection, because the Tax Administrator did not credit interest from 4 years of withheld interest to the company’s personal account. Despite a rejecting appeal, a negative decision of the Regional Court in Hradec Králové, the given dispute was handled by the Supreme Administrative Court (file no. 10 Afs 382/2020-51 from 6 May 2021). The disputable question was, if the taxpayer is entitled to interest on unjustly withheld interest. This was an interest in the amount of the REPO rate set by CNB, raised by 14 %, therefore not a negligible amount. How did it end? It ended well for the taxpayer. According to the Supreme Administrative Court, delay in assessing interest on the original unjustified conduct of the Tax Administrator is subject to further interest, until this interest is credited to the account of the taxpayer. The headnote of the Supreme Administrative Court, according to which if the Tax Administrator acted without justification twice, with regard to two different amounts, which the taxpayer was entitled to, the administrator cannot compensate this double wrong conduct under article 254 of the Code of Tax Procedure by assessing only one interest.

The story therefore ends with a happy ending for Elektrárna after 10 years.

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