The Supreme Administrative Court issued a decision in a case addressing what is the limitations period for a tax inspection when a tax loss is reported.
At issue was whether the limitations period for a tax inspection when a tax loss is involved is governed by the rules under the Tax Procedure Code or whether the limitations period for assessing tax is governed by a special rule under the Income Tax Act (thereby allowing an expanded limitations period for assessing tax when a tax loss is reported).
The high court held that the special rule (and longer limitations period) applies for tax inspections when a tax loss is involved.
The tax authority on 25 November 2015 started a tax inspection concerning the taxpayer’s corporate income tax liability for the 2013 tax period—a period for which the taxpayer reported a tax loss.
The last tax period in which the taxpayer could claim the tax loss was 2018. Therefore, the period for assessing tax ended on the same date as deadline for assessing tax for 2018 (1 April 2022) according to a special provision of the Income Tax Act.
However, in contesting the assessment, the taxpayer referred to the general rule that provides a three-year statute of limitations (as stipulated in the Tax Procedure Code)—that is, three years from the commencement of the tax inspection for the relevant period—and thus claimed that the limitations period for assessing tax had already expired on 25 November 2018.
The Supreme Administrative Court concluded that the rule governing the statute of limitations as contained in the Income Tax Act controls in this situation. The high court continued by explaining that the rule in the Income Tax Act includes a special measure for determining the limitations period for assessing tax in the event of a tax loss, and that the fact that a tax inspection was started means that the longer, eight-year period under the Income Tax Act starts to run again from the tax inspection start date. In this case, the limitations period thus would end on 25 November 2023.
The high court also pointed out that the maximum period for assessing tax is generally limited to 10 years, and in the present case would end 1 April 2024.
The special rule regarding the limitations period for assessing tax only applies to a particular period—not to all periods—for which a tax loss was reported. This rule allows for completion of the tax proceedings in relation to the relevant tax period, not in relation to all periods in which tax losses can be used. Any other interpretations would result in the "chaining" of tax losses, a position previously rejected by the court.
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