We would like to draw your attention to an interesting judgment of the Supreme Administrative Court (SAC) No. 8 Afs 78/2022 - 39 of 31 August 2023.

In the case at hand, the Appellate Financial Directorate (AFD) sent a total of eight requests for international cooperation (exchange of information) to Slovakia on 27, 29 and 30 November 2018 in the course of the proceedings concerning the plaintiff’s appeal against the additional payment orders. However, the AFD did not wait for the results of the international request in the interest of the alleged economy of the proceedings and issued a final decision on the appeal on 4 December 2018 already, i.e. only a few days after the submission of the individual requests.

After the responses to the international requests (witness interviews) were received between January and May 2019, the tax office filed a motion with the AFD to order a retrial. The AFD ordered the reopening of the proceedings that had been finally terminated because, in its opinion, the conditions of the provisions of Section 117(1)(a) of the Tax Code (Act No.280/2009 Coll.) were fulfilled, according to which “proceedings terminated by a final decision of the tax administrator shall be reopened at the request of the recipient of the decision or ex officio, if new facts or evidence have come to light, which could not have been applied in the proceedings earlier without the fault of the recipient of the decision or the tax administrator and could have had a significant impact on the verdict of the decision.” On the plaintiff’s appeal, the General Tax Directorate upheld the decision to reopen the proceedings. 

However, the SAC did not agree with this approach. First of all, it referred to its earlier case-law (judgment No 9 Afs 69/2011-46 of 4 October 2012), in which it had already dealt with a similar factual situation and in which it expressed the general premise that the results of an international request should be awaited, unless there are compelling reasons justifying a contrary course of action. It is then the duty of the tax administrator to identify and convincingly explain these compelling reasons in the light of the individual circumstances of the case at hand.

In the present case, however, the AFD did not identify or set out any such specific, particularly compelling reasons for its action. However, if an international request normally takes several months, a mere four to seven days between its initiation and the termination of the original proceedings constitutes, in the view of the SAC, an extremely short period of time, which, by definition, requires the existence of extremely compelling reasons for such a procedure.

The SAC stated that:

• the reasons for the procedure given by the AFD are so general and unspecific, mentioning only the high time-consuming nature of the implementation of an international request, which is inherent in an international request, that they cannot be accepted as sufficient;
• an extremely serious reason cannot be the passivity of the tax entity or it coming up with evidence proposals only at the end of the tax proceedings, as it is the tax authorities who are responsible for the conduct and course of the tax proceedings, therefore any delays must be attributed to them (SAC judgment No. 7 Afs 241/2019-52 of 17 June 2021, paragraph 28);
• The AFD did not take into account the fact that request was addressed to Slovakia as a neighbouring country, which usually responds in much shorter timeframes than other countries, such as Italy (e.g. 7 Afs 288/2017-36, point 2), France (judgment of the SAC of 25 June 2020, no. 9 Afs 108/2020-49, points 24 and 25) or Ukraine (judgment of the SAC of 19 September 2022, no. 2 Afs 190/2021-74, point 6), which must be known to the tax administration from official activity.

The SAC concluded that: “in view of the specific circumstances of the case at hand, the tax authorities did not really demonstrate such serious reasons that would justify the procedure of the Appellate Financial Directorate in terminating the original proceedings and subsequently ordering their reopening. Thus, according to the Supreme Administrative Court, the new facts resulting from the international request in the present case were not applied earlier in the original proceedings due to the deliberate action of the Appellate Financial Directorate. This is not altered by the fact that the Appellate Tax Directorate has already stated in its annulment and amendment decision that the results of a large number of interviews requested may in the future be grounds for a retrial. In order to order the reopening of proceedings, the conditions laid down by law, here Section 117(1)(a) of the Tax Code, must be met, taking into account its interpretation by the administrative courts. However, these conditions were not met in the present case.”

Finally, it should be said that the complainant (only) admitted in the appeal that the impending limitation period was (at least) one of the reasons for the termination of the original proceedings. However, the SAC did not address these circumstances as grounds for the termination of the original proceedings and the subsequent reopening of the proceedings, because: “The shortcomings of administrative decisions cannot be subsequently compensated for by more detailed factual and legal arguments raised only in the course of court proceedings (judgment of the Supreme Administrative Court of 30 November 2022, no. 8 Ads 111/2021-46, paragraph 42 and other case law cited therein).”

Author: Lenka Kočerová, Jaroslava Půtová