New NAV guidance published on the exercise of its exemption powers

The involvement of a tax adviser may also be important when submitting taxpayer’s observations
on tax audit reports and requests for payment reductions

During tax audits, it is often the case that taxpayers only turn to a tax adviser when they are already faced with the HTA decision on tax shortfalls established and sanctions (tax penalty, default penalty, late payment penalty) imposed. However, as the procedural rules have become stricter in recent years, the legal possibilities to mitigate the consequences at this stage have become significantly limited as a result.

The taxpayer has the right to inspect the documents generated during the tax audit after prior consultation with the tax authority, to request clarification of the findings, to comment on them, to submit evidence and, most importantly, to inspect the tax report (protocol) and to comment on it within 15 days of its delivery (in the case of other audit activities) and within 30 days in the case of a tax audit. Both time limits are statutory.

In an appeal against a final HTA decision, it is no longer possible, with rare exceptions, to raise new facts or new evidence that the taxpayer was aware of before the deadline for submitting comments, but did not submit to the tax authority.

Therefore, the most effective way to reduce any negative consequences for the taxpayer (findings or sanctions) is to submit considered observations on the tax report within the statutory deadline.

In the observations, the taxpayer also has the opportunity to draw the tax authority's attention to the extenuating circumstances of their position. The HTA is obliged to exercise fairness within the limits of the law, and is entitled to do so ex officio, but also upon request. In its recently published guidance (Guidance on the exercise of the exemption power 3002/2021), the HTA also describes in detail how it can exercise fairness in the application of penalties and in the granting of payment discounts and reliefs.

In principle, when applying penalties, the tax authority must take into account all the circumstances of the case, in particular

a) the prudent conduct that the taxpayer can be expected to show,

(b) the amount of the tax deficiency (or other omission) and the circumstances in which it arose,

(c) the seriousness and frequency of the taxpayer's unlawful conduct (activity or omission).

In its latest statement the Ministry of Finance has announced that by the end of the year the Government will add to the existing fairness and payment relief entitlements the special fairness grounds that can be requested in the light of the COVID-19 pandemic.

Payment discounts and reliefs are another option available to taxpayers experiencing temporary financial difficulties and are only available on request. Taxpayers who have not yet made such applications may wish to seek the assistance of a tax adviser to ensure that the tax authority does not refuse payment relief on the grounds of incomplete or non-compliant information. 

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If you need clarification or assistance to adequately represent your Company's interests during a tax audit, or to take advantage of the payment discounts and reliefs provided by law during a temporary financial difficulty, please contact our tax experts.

This newsletter provides general information and does not constitute tax advice.