Ruling description

In a judgment handed down on February 16, 2015 (case no. II FSK 52/13), the Supreme Administrative Court permitted an amendment to the final decision to refuse to acknowledge an overpayment, despite the fact that it also concerned a tax liability

A taxpayer applied for a written tax ruling regarding the PIT Act, claiming that the remuneration for an inventor paid in 2007 (in the wake of 10-year court proceedings) ought to be exempt from PIT. The Minister of Finance rejected the applicant’s stance as incorrect, first classifying the remuneration as revenue from property rights, to be reported in the 2007 tax return, and finally, in October 2010 – after the tax ruling had twice been reversed by the court – as job-related revenue.

In the course of a dispute over the tax ruling, the applicant filed an application for the acknowledgement of an overpayment, seeking a ruling to the effect that the remuneration obtained in 2007 under a court settlement was exempt from PIT. By a decision, the head of the tax office determined the PIT liability for 2007 and refused to acknowledge an overpayment. This decision was upheld by the head of the tax chamber in February 2010. As the applicant had not appealed against the decision within the statutory timeframe, it became final and non-appealable.

After the dispute over the tax ruling came to an end, the applicant filed an application in January 2011 under Article 253 of the Tax Ordinance Act, seeking a reversal of, or an amendment to, the final decision to refuse to acknowledge an overpayment and citing the content of the individual tax ruling, according to which the revenue obtained in 2007 in connection with a court settlement constitutes job-related revenue, with the interest on the remuneration being exempt from income tax.

The first-instance and appellate tax authorities refused to reverse or amend the decision to refuse to acknowledge an overpayment. Likewise, the provincial administrative court saw no grounds for reversing this decision, stating that it determined a tax liability, and as such it could not, by operation of law, be reversed or amended. According to the Supreme Administrative Court, in order to assess Article 253 of the Tax Ordinance correctly, one should bear in mind that the decision determining a tax liability was issued as a result of an application for the acknowledgment of an overpayment. Thus, although decisions determining the amount of a liability were explicitly listed among decisions which could not be amended or reversed, if the proceedings primarily concern the acknowledgment of an overpayment and the amount of a tax liability is determined merely as an incidental matter, a special procedure can be launched for the purpose of eliminating the decision from legal transactions.

Comment

This is a highly favorable landmark decision for taxpayers who have received adverse decisions in overpayment cases. If a ruling on tax regulations is amended, it is possible to commence overpayment proceedings,even if the decision determines an overpayment and tax liability. However, such proceedings involving an amendment to, or a reversal of, a decision are subject to a special procedure remaining at the tax authority’s sole discretion. In order for such a procedure to be launched, it is necessary to prove that the taxpayer has an “important interest”– in this case, an undue payment of tax.