We are particularly keen to monitor the ongoing developments in the subject of tax-related limitation. The recent ruling (1738/2017) of the Plenary Assembly of the Council of State (CoS) regards the successive extensions of the time limitation of tax cases unconstitutional, while waiting for the CoS’s judgment on the meaning of the supplementary provisions of paragraph 2 of art. 68 of Law 2238/1994, in relation to cases of increase of assets based on bank account data in Greece.
Through these developments, the Independent Authority for Public Revenue (IAPR) amended its directives for the tax offices, setting new criteria for selecting which cases should be audited as a matter of priority. More specifically:
The CoS 1738/2017
With ruling 1738/2017, the Plenary Assembly of the Council of State decided that, with the successive extensions of the time limitation of tax cases shortly before the expiry of the initial limitation period or its extension, the rule of limitation at 5 years ends with no substantial application.
Moreover, the fact that the extension of the limitation period is now dependent on actions of various authorities, e.g. the issuance of an order for audit by the tax authorities, results in the limitation period of the same year being different from taxpayer to taxpayer!
In line with the CoS’s reasoning, these practices violate the fundamental principles of legal certainty and the protection of citizens' confidence, which require the clarity and foreseeable application of rules that have serious economic repercussions, so that taxpayers' situation is not put in question indefinitely. In this context, the expiry of the limitation period must be specified in the law in advance, with reference to a specific point in time and not dependent on public authority actions.
Particularly important is the CoS's judgment that any prolongation of the limitation period is possible only by a provision made no later than the following year from the year in which the tax liability is incurred and not shortly before the end of the year as was the case until now (e. g. for 2016 income, the extension should be granted by the end of 2017). At the same time, the limitation period must be reasonable overall to comply with the principle of proportionality.
The instructions of LCHS to IAPR
On the basis of the aforementioned ruling, the Legal Council of the Hellenic State (LCHS 2642/2017) gave "instructions" to the IAPR and briefly pointed out the following:
Scope of application of CoS 1738/2017
The administration is not required to comply with the CoS’s decision in question in dealing with other cases with similar legal issues. However, within the framework of the rule of law, it may and should apply it as a case law. The question whether the tax and customs authorities will eventually apply the ruling of the CoS falls within the sphere of choice and the will of the Director of IAPR.
The reasoning of the CoS for the non-constitutionality of the extension of the limitation by actions of a public authority obviously refers to the legislation for the years 2013-2016, which allowed further extensions of the time limitation, although the ruling of the CoS does not expressly mentions it, obviously because it was not necessary based on the real case.
Interpretation of articles 68 p.2 and 84 p.4 of law 2238/1994
The ruling of the CoS did not address the question of the interpretation or application or even of the constitutionality of the combined provisions of articles 84 p.4 and 68 p.2 of law 2238/1994, which define that the limitation period is ten years in case of:
(a) Supporting the check sheet on supplementary information, which has come to the knowledge of the tax authority after the end of the five-year limitation period; or
(b) The tax return statement submitted or the accompanying forms or statements prove inaccurate.
Case (a) is pending as stated in the CoS. The judgment of the court cannot be prejudiced, but neither the contested ruling of the CoS nor any other may question the constitutionality of those provisions.
Case (b) refers to an inaccuracy of the statement or the data submitted, in the meaning of not responding to the truth or reality, that is they are objective and can be proven in any way without being conditional on additional information to the tax authority or on intentional concealment on the part of the taxpayer (CoS 397-404 / 1989).
Interpretation of Articles 36 p.3 and 72 p.11 of Law 4174/2013 (Code of Tax Law)
The ruling of the CoS did not address the question of the interpretation or application or even of the constitutionality of the combined provisions of articles 36 p.3 and 72 p.11 of the Code of Tax Law for the 20-year limitation period in cases of tax evasion after the entry into force of the CTL and before its entry into force, provided that the right of the State had not yet expired.
It is true that the judgment of the CoS's ruling that the length of the limitation period must be reasonable and proportionate and that the expiry of the limitation period cannot be linked to the amount at which the administration will determine the tax obligations of the administered, does not appear to provide scope for the application of the above provisions as objects to the principles of proportionality and legal certainty.
Nevertheless, the issue of constitutionality and / or the interpretation and application of those provisions as to the reasonableness or otherwise of the limitation period laid down therein has not been directly addressed by the CoS and the Tax Administration must therefore apply them until such time as a decision is taken.
The same applies to the 15-year limitation period of article 84 p.5 of Law 2238/1994 in the event of failure to submit a statement of income tax or statement of return on withholding taxes, etc.
Effects of limitation on claims for tax reimbursement as undue payments
Claims for reimbursement of taxes as unduly paid on the grounds that they relate to tax years under limitation based on the ruling of the CoS are not valid for this reason alone without the annulment or modification of the demands for payment by a decision of the Dispute Settlements Division or the court, given that the limitation of the State's right does not mean that there is no tax obligation, and under Article 272, subparagraph “b” of the Civil Code, what is paid without knowledge of the limitation is not sought.
Discount of the persons subject to the favorable provisions of Law 4446/2016
There are cases where taxpayers have been subject to the favorable provisions of Law 4446/2016 for the voluntary disclosure of undeclared income and have submitted initial or amended statements but do not pay the amounts set based on the ruling of the CoS.
Those taxpayers are then excluded from the favorable provisions, and there will follow the adoption of corrective action and fines as well as the setting of demands of payment of additional taxes and non-asserted infringements (even if they relate to tax years under limitation).
Effect of the limitation of tax claims in criminal cases
According to Article 55A of the Code of Tax Law, prosecution of tax evasion offenses is carried out ex officio, following the filing of a criminal report by the Director of the IARP, which requires a definitive corrective action of tax assessment.
The provision also applies to acts that took place before its entry into force, i.e. on 17-10-2015, for which no criminal proceedings have been brought.
Consequently, in the case of a limitation of the right of the State to establish a violation and to impose the relevant taxes and penalties, in cases where there is a corresponding criminal offense (tax evasion, etc.), there is no impediment to the initiation or continuation of the criminal proceedings.
However, performing or continuing and finalizing the audits that have already begun, in cases that have been limited on the basis of the CoS ruling, will be ineffective.
Therefore, for post-prosecutor inquiries both for both before and after the entry into force of Article 55A of the Code of Tax Law, it is necessary to request an opinion from the Public Prosecutor of the Supreme Court or instructions from the officer that ordered the audit regarding the issue of carrying out the audits.
To conclude, the LCHS instructs the IAPR to redefine its audit strategy by focusing on undoubtedly unlimited tax years.
For undoubtedly unlimited tax years it should weigh up whether to perform or complete audits just to initiate prosecution against tax evasion offenders. If no definite demands for payment have been issued, there should be no cash statement of debts nor enforcement measures until the demands for payments have been finalized or not.
The IAPR Decision
According to the above directives, the IAPR has amended the directives issued for the tax authorities, setting new criteria for selecting which cases should be audited as a matter of priority.
Essentially, the IAPR decided that priority should be given to auditing cases that:
(a) Have not yet been limited, i.e. five years have not yet passed (years 2011 and beyond) or
(b) fall within the cases where the Income Tax Code itself expressly provides for an extension of the limitation period: for example, in the absence of a statement of income tax, the existence of supplementary data and cases of tax evasion, where the limitation period foreseen by the ITC is extended to ten (10), fifteen (15) and twenty (20) years respectively.
In particular, based on the aforementioned decision of the IAPR, the following pending cases will be audited as a matter of priority:
Year 2001 and beyond: They are audited as long as no income tax statement has been submitted, since in this case a 15-year limitation period applies.
Year 2006 and beyond: They are audited if additional information obtained from the tax authorities is verified that the taxpayer's income exceeds what was declared. In this case, a 10-year limitation applies.
Year 2008 and beyond: They are audited for tax evasion, for fake / false invoices, etc. In this case a 20-year limitation period applies.
Year 2011 and beyond: since for these tax years, five years have not yet passed, they have not yet been limited.
It is noted that the above applies to income taxes and Code for Books and Records, as VAT, capital and stamp duties are subject to different limitation periods (for the years prior to 2014).
Particularly in the case of stamping, it should be noted that until the entry into force of the CTL, i.e. until 31.12.2013, the statutory limitation for the imposition of stamp duty and the subsequent contribution for the (Hellenic) Agricultural Insurance Organisation was 20 years, since there was no provision regulating a more specific time limit and therefore the claim was subject to the 20-year limitation period under Article 249 of the Civil Code.
In this case, however, the issue of the possibility of auditing very old tax years arises, as the obligation to keep books in line with the provisions in force is, as a rule, for a period of five years.
After 1/12014, the five-year limitation period and the other provisions of article 36 of the Code of Tax Law apply also to stamp duty.
Published in "Accountant" magazine, issue 740, 11/2017