Promíjení pokuty za neoznámení osvobozeného příjmu

Penalty for failure to report exempt income

The Ministry of Finance has issued the GFD Instruction D-56 (available in Czech HERE), which regulates the tax administrator's procedure for deciding on the forgiveness of penalties for failure to report exempt income.

A taxpayer who has realised exempt income exceeding CZK 5 million is obliged to submit a notification; the notification must be submitted no later than the deadline for filing the tax return for the tax period in which the taxpayer received the income. In the event of failure to comply with this obligation, the ITA provides for relatively material penalties (calculated on the amount of the total exempt income, not just the profit made) in the following amounts:

• 0.1% if the taxpayer files the notification additionally on his/her own without being invited by the tax administrator;
• 10 % if the taxpayer submits the notification within the replacement period after the tax authority's invitation;
• 15 % if the taxpayer does not submit the notification even within the alternative period.

The relatively strict interpretation of this provision was also recently upheld by the regional court (we informed you HERE). Perhaps it is in response to these cases that the Ministry is now addressing the issue with a guideline.

The ITA gives the tax administrator the option to waive the penalty in whole or in part if the failure to file the notice was due to a justifiable reason.

The basic condition for the (partial) waiver of the penalty to be granted is that the taxpayer or a person who is a member of its statutory body has not seriously breached tax or accounting legislation in the last 3 years.

The Instruction then sets out a demonstrative list of justifiable grounds for waiving the fine, which are:

• Adverse health condition of the taxpayer preventing compliance with the obligation to report exempt income;
• The taxpayer is affected by a natural disaster;
• Filing the notice without a notice from the tax administrator within 150 days after the original statutory deadline;
• Submission of the notification upon the tax administrator's request within 120 days after the expiry of the original statutory deadline.

The percentage assessment of the waiver of the amount of the penalty in the above cases ranges between 90-100%, which can be considered a relatively reasonable modulation of the penalty, given the amount of the penalty and the fact that de facto no revenue to the State budget was cut. The question remains as to what amount of the fine the tax administrator will project in situations where the taxpayer discovers the misconduct, for example, only when preparing the tax return for the following year, which will be 150 days after the original deadline.

If you have any questions, please contact the author of the article or the EY advisory team you are working with.

Author:

Adam Linek