The tax authorities had increased the amount of the tax due to a change in the calculation of interest on loans granted by DATON technology to its partners (managing directors).
At issue was whether the amount of the normal interest on loans granted by DATON technology to its managing directors should be determined on the basis of a fixed interest rate for the entire period of the loan or whether changes in the interest rate should be taken into account when calculating the interest as a monetary benefit – income from employment.
Judgement of the Court
The Supreme Administrative Court did not find that the pleaded ground of appeal was met and therefore dismissed the appeal.
In failing to take account of changes in interest rates in 1998, the year for which it imposed the tax, when calculating the interest on the interest-free loan granted by the applicant (in its capacity as ’employer’) to the managing directors (in their capacity as ’employees’), the applicant acted contrary to established administrative practice.
Excerpts
“However, equal treatment in terms of uniform administrative practice must be maintained in relation to taxpayers. The key to resolving the question of whether the amount of interest normally payable on loans granted by the taxpayer to its managing directors should be fixed at the date on which the loan was granted or whether changes in the interest rate over time should be taken into account in calculating the interest is precisely that administrative practice. As already indicated above, an administrative practice is an activity which is generally accepted and followed, its permanence depending on the frequency and duration of its use. It is possible to deviate from an established administrative practice ‘in principle only in the future, for rational reasons and for all cases which are affected by the administrative authority’s practice’ (cited from the judgment of the Supreme Administrative Court of 28 April 2005, No 2 Ans 1/2005-55). Thus, although the statutory provision allows for a dual interpretation (both approaches are defensible), what is decisive in the present case is that there is an established administrative practice which is not contra legem.
[24] At the same time, the Supreme Administrative Court also considered the objection of the complainant as an administrative authority that the tax administrators in similar cases acted identically throughout the territory of the Czech Republic. This objection would imply that, despite the existence of a methodology, the tax administrators are governed by different rules, i.e. In particular, the phrase: ‘This calculation shall be carried out at least once per tax period for the purposes of taxation.’).”
“The tax authorities must apply a level playing field in relation to taxpayers. If taxpayers can have a legitimate expectation of a certain administrative practice on the basis of generally available information (about the tax authorities’ internal procedures), it is not possible to reasonably argue that the tax authorities have changed their administrative practice without actually demonstrating that that practice meets the required criteria (see paragraph 18); those criteria may in principle also include the criterion of publication in the sense of the objective possibility for taxpayers to learn about that administrative practice.
[28] In so far as the complainant considers that the reference to the Ministry of Finance’s methodological guidelines does not apply to it, since ‘the tax administrator in the present case is in a different position from the employer in granting employee loans’, this is not a relevant argument. As stated above, the administrative authorities are obliged to follow the methodological guidelines in their practice. The determination of the method of calculating interest for income tax purposes in a methodological guideline is a guideline for a uniform approach, in particular by the administrative authorities (tax administrations). In addition, the tax subjects (here employers) are assured that if they follow these rules, the tax authorities should not reproach them for incorrect practice in the event of an audit.
[29] However, the Supreme Administrative Court agrees with the complainant’s objection concerning the irrelevance of the applicant’s argument that the Czech National Bank reduced interest rates in 1998. In so far as that bank did not at all grant loans similar to the loan granted by the applicant to the managing directors, it is not possible to include that bank in the group of financial institutions granting such loans (similar in time and place) on the basis of which the complainant calculated the normal interest rate. If, during 1998, the Czech National Bank reduced interest rates, that does not mean that the individual financial institutions which behave in a market-oriented manner must also have reduced their interest rates.”
As regards the binding nature of the Guidelines, the Supreme Administrative Court has expressed itself as follows:
“The Supreme Administrative Court has already dealt with the nature of methodological guidelines and the binding nature of administrative practice of administrative authorities in several of its decisions, on the basis of which it is possible to define binding administrative practice briefly by means of
1. the criterion of legality – it must be exclusively a practice (action or inaction) which is established in accordance with the law, or created on the basis of the authority conferred by law, while it must not interfere with the legally guaranteed rights of private persons, and
2. predictability – the practice is generally accepted and followed by the relevant administrative authorities, one can legitimately expect the same practice in similar cases.
2-Afs-53-2010-–-63 ENG
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