Infocourier - April 2021

• A Summary of Court judgement

Please feel free to contact KPMG’s tax advisers with any queries you may have.
We hope you are enjoying reading it! 

Summary of Tartu Circuit Court judgment in administrative matter no. 3-19-1129 (11 February 2021)

The Circuit Court reviewed a situation where the Tax and Customs Board (TCB) had demanded that a convicted tax offender pay interest on his tax liabilities for a period when his financial assets were seized in the course of criminal proceedings to guarantee the payment of his tax liabilities. The appellant asked the TCB to withdraw the claim for the payment of interest, because this seemed unfair given the above mentioned circumstances.

The Circuit Court analysed the circumstances pertaining to the dropping of such claims on the basis of case law established by the Supreme Court. According to the latter, an injustice that has been caused by circumstances that could not have been under the control of the taxable person is a prerequisite for waiving tax arrears. If the existence of injustice cannot be ascertained, there are no extraordinary circumstances that warrant the withdrawing of any claims for accrued interest. The Circuit Court concluded that in this particular case the circumstances could not be considered extraordinary.

Still, the Circuit Court decided that the TCB’s interest claim had to be dropped, as the TCB partly failed to exercise its discretionary power, when the appellant contested the claim. The failure was so significant that it led to the violation of the rights of the appellant and to the cancellation of the respective discretionary decision made by the tax authority.

• The Court stated, first, that the TCB did not consider the possibility to withdraw the interest claim even though in the case at hand the charging of interest ran the risk of economic double taxation. The latter risk has been extensively explained by the Supreme Court in its judgment in administrative matter no. 3-16-2514 (26 March 2019). In short, the charging of interest carries a risk of economic double taxation because, for the reason of eliminating a possible interest liability, a taxpayer might be forced to fulfil a financial obligation arising from the same factual circumstances twice. The Supreme Court ruled that this was legal, but by no means acceptable.
• In addition, the tax authority did not take into account the fact that during the period when the appellant’s financial assets were seized to guarantee the payment of his tax liabilities, the charging of interest on tax liabilities did not to the complete extent fulfil the aims of calculating such interest. The aims of charging interest on tax liabilities are: (1) to guarantee the state the payment of a fee for the use of taxes charged, but not paid on time, and the payment of a compensation for possible damages caused by late payment; (2) to incite taxpayers to fulfil their obligations on time.
• Finally, the Court said that TCB should have analysed whether it was justified to waive the claim for interest partially.

The court judgment is available here (in Estonian).

Further information: Tax Advisor Olga Lavrova, olavrova@kpmg.com