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The Constitutional Court Approved the Penalty for Late Filing of Tax Return

Penalty for late filing of tax return (hereinafter the “penalty”) is a sanction which, pursuant to the Tax Code, will be imposed if a tax subject files its tax return after the statutory deadline or fails to file it completely. The amount of the penalty depends on the amount of tax, which was or should have been stated in such tax return and on the length of delay in filing. The maximum amount of penalty is CZK 300 000. The obligation to pay this penalty is defined directly in the law, thus, the tax authority has no opportunity to modify the penalty amount or to decide that it, for whatever reason (even if justifiable and understandable), will not be imposed.

However, during the decision-making process, the Municipal Court in Prague concluded that such legal definition of the penalty is contrary to the fundamental rights of tax subjects guaranteed by the Declaration of Fundamental Rights and Freedoms. For this reason, the Municipal Court filed a motion to the Constitutional Court to repeal the concerned Section 250 of the Tax Code. The unconstitutional nature of this provision was reasoned as follows. It is inadequate that the tax authorities have no opportunity to determine the amount of penalty, or decide on its non-imposition, and thus respond to the specifics of the particular failure to file the tax return. Further, it is also inadequate and contrary to the equality principle, if the amount of the fine depends on the amount of tax obligation. This result in an absurd situation where penalties of different amounts are imposed to different tax subjects for the equally significant breach of tax obligations (more precisely, for the same length of delay).

The Constitutional Court than conducted the so-called test of proportionality and on its basis concluded that the penalty is a sanction which suits its purpose (making undesirable behaviour of tax subjects not to pay off), is necessary (to ensure the fulfilment of tax obligations and thus the income to the state budget) and also does not overly interfere with the property rights of tax subjects (does not have a liquidating nature). According to the opinion of the Constitutional Court the penalty, thus, takes into consideration the significance of the breach of tax obligation as well as the individual economic situation of tax subject and is fully appropriate to the intended objective. For this reason, the Constitutional Court rejected the motion to repeal of the provision in question.

Therefore, it may be concluded that the tax subjects should not forget to file their tax return in a timely manner; otherwise they risk that a fine of up to CZK 300 000 will be imposed on them due to late filing.

Tomáš Babáček +420 246 042 814 tbabacek@deloittece.com

Jiřina Neumannová +420 246 042 430 jneumannova@deloittece.com

Táňa Čapková +420 246 042 297 tcapkova@deloittece.com