Sanctions for missing deadlines in taxes

At the beginning of 2021, an amendment to the Tax Code came into force, and the changes it has introduced partially affected the area of sanctions. Thus, in our today´s article, we will look at the impact of these changes on tax subjects and what are the threats in the event of delayed fulfilment of tax obligations.

Penalty for late submission

The tax subject is obliged to submit the tax declaration properly and on time, i.e., within the statutory deadline. If the subject fails to do so, there is a so-called tolerance period of 5 working days, during which subject can rectify his obligation and such delay is not penalized. If declaration is submitted after this deadline or is not submitted at all, the subject is obliged to pay a penalty for late submission.

According to the Tax Code, the amount of the penalty for late submission of a regular or additional tax return is as follows:

• 0.05% of the assessed tax for each day of delay after the so-called tolerance period, but not more than 5% of the assessed tax,
• 0.05% of the assessed tax deduction for each day of delay after the so-called tolerance period, but not more than 5% of the assessed tax deduction, or
• 0.01% of the assessed tax loss for each day of delay after the so-called tolerance period, but not more than 5% of the assessed tax loss.

Similarly, the penalty for late submission of a notification, statement, subsequent notification, or additional statement is calculated. The amount of such penalty is 0.05% of the total amount of declared tax for each day of delay after the so-called tolerance period, but not more than 0.5% of the total amount of tax that the subject was obliged to declare in the notification or statement.

The tax administrator shall issue a payment order in connection with the imposed penalty. Subsequently, there is a period for payment of the sanction, usually 30 days from the date of delivery of the payment order. If the amount of the penalty does not reach the value of CZK 1,000 (until 2020 the value was CZK 200), it is not prescribed, and the taxpayer therefore does not have to pay it. However, if the subject does not fulfil the obligation of submission even subsequently, the tax administrator will apply the calculation of the fine according to the upper limit of the above-mentioned individual types of tax declarations. The tax administrator then imposes the penalty of at least CZK 500. In all cases, a penalty of up to CZK 300,000 can be imposed.

Provided that the subject submits the tax declarations within 30 days of the expiration of the time limit for its submission and at the same time the tax administrator does not find out in the given calendar year that the subject is in delay with submission of another tax declaration, the amount of the penalty is reduced by half.

Late payment interests

There are various forms of interest in the Tax Code, both paid by the tax subject (late payment interests and interest on deferment) and interests paid by the tax administrator (interest on repayable overpayment, interest on incorrectly determined tax and interest on tax refund).

For our needs, we will analyse in more detail the first of the above, which is often an accompanying phenomenon of late submission of tax returns. Interest on late payment may arise for two reasons:

• non-payment of due tax,
• a refund incurred because of the unauthorized calim of a tax refund.

Interest arises from the fourth day after the due date and is calculated until the date of payment of the tax or arises from the date when the refund was returned, used or transferred by the tax administrator or prescribed an advance for tax refund until the date of payment. The advance payment on tax refund have been addressed in our older article.

The amount of interest on arrears now corresponds to interest on delay in ordinary business and other relations according to the Civil Code and is currently regulated by Government Regulation No. 351/2013 Coll. as following:

"The amount of interest on delay corresponds annually to the repo rate set by the Czech National Bank for the first day of the calendar half-year in which the delay occurred, increased by 8 percentage points."

In this area, there was a significant decrease in favour of tax subjects, when last year the amount of late payment interest was at the amount of the repo rate increased by 14 percentage points. The current amount of repo rate as of the first half of 2021 is 0.25%. For the following half-years, its development can be monitored on the CNB's website. From this year, the minimum amount of interest that can be prescribed is also adjusted. This amount is now CZK 1,000 (until 2020 it was CZK 200).

A separate area are additional sanctions for non-compliance with obligations in the field of VAT, especially for late submission of the so-called VAT Ledger Statement, both regular and subsequent, as a result of calls from the tax administrator.

As one can see, the sanctions associated with "missing out" deadlines may be perceptible, especially if they accumulate. We therefore recommend monitoring the deadlines for fulfilling particular tax obligations and thus, avoiding unnecessary sanctions imposed by the tax administrator.