Late VAT deduction: accepted first, later reassessed with penalties

In April 2020, the taxpayer filed an additional VAT return for October 2019, claiming an input VAT deduction exceeding CZK 2.6 million. The claim was based on two invoices issued in December 2016 and January 2017. At the same time, the taxpayer submitted an additional VAT Control Statement together with a cover letter explaining that the additional return was filed for accrual reporting purposes towards its parent company. The taxpayer also asked the CZ tax authority to review the claim if it disagreed.

In June 2020, the CZ tax authority implicitly accepted the claim and issued an additional assessment in line with the taxpayer’s filing. Two years later, however, it raised doubts as to whether the deduction had been claimed in time. Under Section 73(3) of the Czech VAT Act, the deduction must be claimed within three years. The CZ tax authority therefore requested the taxpayer to submit another additional return. The company responded by filing a “zero” return.

The CZ tax authority then initiated a procedure to remove doubts. As these doubts were not resolved, it issued a new assessment in January 2023, denying the previously accepted deduction and imposing a penalty of nearly CZK 525,000.

The key issue: who is responsible for the original acceptance of the deduction?

The taxpayer challenged the decision before the courts. It argued that the tax authority had changed its legal position without any new facts, thereby breaching the principles of legal certainty and legitimate expectations.

According to the taxpayer, the original implicit assessment meant that the CZ tax authority had already reviewed the return both legally and factually. If the authority had made a mistake and later changed its view, it should have initiated a review procedure (used to correct unlawful decisions), rather than inviting the taxpayer to file an additional return under Section 145(2) of the Tax Code.

On this basis, the taxpayer refused to pay the penalty, arguing that the error lay with the CZ tax authority and referring to earlier case law.

Findings of the Supreme Administrative Court

The Supreme Administrative Court dismissed the cassation complaint. It confirmed that the CZ tax authority acted lawfully and emphasised the principle of self-assessment. Under this principle, the taxpayer calculates its own tax, files the return, and bears full responsibility for its correctness.

If the CZ tax authority has no specific doubts, it assesses the tax in line with the taxpayer’s filing without further verification. This results in a full acceptance of the taxpayer’s claim. An implicit assessment therefore cannot generally be considered unlawful.

Accordingly, the Court rejected the argument that the CZ tax authority had adopted one legal view in 2020 and changed it in 2022. At the time of the implicit assessment, the CZ tax authority had not examined the substance of the claim at all.

The Court also agreed that a review procedure was not appropriate in this case. Such procedures are intended to correct unlawful decisions. Here, however, the original implicit assessment was not based on an incorrect legal analysis, because no such analysis had taken place. Instead, it resulted from an incorrect tax claim made by the taxpayer.

The correct approach was therefore to invite the taxpayer to file an additional return and to follow up with a procedure to remove doubts.

Where is the line: when must the tax authority raise doubts?

The Court also addressed earlier case law, including the Hamé and Sev.en EC decisions. It acknowledged that there are situations where the CZ tax authority cannot rely on implicit assessment because the error is obvious at first glance—for example, clear calculation mistakes, incorrect signs, or taxation of supplies that are clearly not taxable.

However, this was not such a case. The cover letter did not include the date of the taxable supply or the invoice dates. Although the CZ tax authority had access to the additional VAT Control Statement, it was nineteen pages long and contained data on hundreds of transactions.

The Court emphasised that, in the context of implicit assessment, the CZ tax authority cannot be expected to carry out detailed cross-checks between documents or perform a legal analysis of whether the deduction was claimed in time. That would go beyond a basic review and undermine the principle of self-assessment.

Conclusion and practical takeaway

The judgment clearly confirms that responsibility for an incorrect tax claim cannot be shifted to the CZ tax authority simply because it initially accepted the claim without objection.

The same applies to penalties. They arise directly by law, and the taxpayer could only have avoided them by responding to the CZ tax authority’s request with a new additional return and voluntarily reducing its claim—which it failed to do.

The case is another reminder that attempting to claim a time-barred deduction in the hope that it “might go unnoticed” carries the full risk of reassessment, including significant penalties.

Are you facing a similar situation, or unsure whether your VAT deduction can still be safely claimed? Feel free to contact us—we will be happy to assess the risks and recommend the best course of action.