Amendments to tax legislation aimed at economic relief for citizens and businesses during the period of emergency were introduced with the State of Emergency Measures and Actions Act, promulgated by a decision of the National Assembly of March 13, 2020 (the Act). We shall briefly analyse the key tax law issues which may arise post adoption of the Act.
What is provided for in the Act in the context of tax law?
- Extension of a number of terms for filing tax returns and tax payments;
- Suspension of enforcement proceedings under the Tax Insurance Procedural Code (TIPC) and a prohibition for initiation of new ones;
- Suspension of ordinary and absolute prescription on public obligations until the state of emergency is lifted;
- Other provisions concerning administrative terms, audit proceedings and accruing interests for delay.
- What terms shall be extended and for how long?
One of the most publicly commented measures was the extension of tax declaration and payment terms. The term for filing the Annual Tax Return for Natural persons for 2019 remains the same – April 30, 2020. In order for a 5% discount to be applied, the annual tax return should be submitted electronically by March 31.
According to the amendment to the Income Taxes on Natural Persons Act, sole traders shall file an annual tax return and a business activity report by June 30, 2020 and shall pay the tax due. In order to benefit from the 5% discount, the said persons should file their tax return electronically by May 31, 2020.
According to the amendment to the Corporate Income Tax Act (CITA), by June 30:
- legal entities shall file an annual tax return as well as pay the corporate tax due;
- due taxes on expenses should be paid according to Art. 204 et seq. of CITA;
- public-financed enterprises shall file an annual tax return and pay the tax due;
The term for filing the annual financial statements of companies and non-profit associations and foundations in the Commercial Register is extended until September 30.
- The terms for payment of advance contributions for persons obliged to pay such remains unchanged. However, some new features have been introduced in regards calculation of the said contributions, depending on whether an annual tax return has already been filed.
All terms not expressly extended by the new act remain unchanged. This also applies to the terms under the Value Added Tax Act - the next term for filing the monthly VAT return of the registered persons is April 14. The terms for registration in the cases provided for by law also remain unchanged.
2. Will interest on due public liabilities be charged?
There is no clear answer to this question in the new Act. Art. 6 of the Act stipulates that interests and penalties will not be charged to natural persons and legal entities for late monetary payments. However, this rule is considered to be related to payments between these parties. The provision does not explicitly envisage its application to public liabilities.
In addition, § 49 of the transitional and final provisions of the Act stipulates that the terms and proceedings for the collection of public liabilities, regulated by the TIPC, remain unchanged, except in the cases explicitly provided for by the law. It is precisely in the part that governs the collection of public liabilities under TIPC that the interest on late payment of such is settled. This leads to the conclusion that through this paragraph the legislator aims precisely to exclude the accrual of interest on public liabilities from the general limitation of Art. 6.
In other words, it is likely that interest on late payment of public liabilities, including taxes and social security contributions, would be charged by the NRA during the period of emergency. This opinion was also published on the official website of the NRA, as well as unofficially confirmed by the Agency’s employees upon our inquiry.
3. Can new enforcement cases be initiated for due public liabilities (taxes, social security contributions, etc.)?
The Act explicitly prescribes that no new enforcement cases for due (established by audit instrument or declared) public receivables shall be initiated during the state of emergency. However, an important exception to this rule is that enforcement can be initiated where it is necessary to protect particularly important state or public interests or where the enforcement is hindered or severely impeded. The assessment whether these circumstances exist is vested in the revenue administration.
In practice, new enforcement cases for due public receivables may be initiated by a decision of the NRA. Hence, the provisions of the new Act do not create a situation that is particularly different from the current procedure. The actions in the newly initiated court proceedings could be appealed before the director of the respective territorial directorate as unlawful. The director’s decision is, in some cases, subject to appeal before the court. However, given that the activity of the courts is strictly limited during the state of emergency, this option may be seriously hampered.
4. Shall public receivables enforcement proceedings be suspended?
The Act prescribes that the enforcement proceedings initiated pursuant to the TIPC should be suspended, while the actions already performed will remain in force. In other words, if there has been an attachment to a bank account, for example, it would not be lifted.
Public contractors are also prohibited from performing any new enforcement actions in these proceedings. However, there are two exceptions to this rule.
1. Public contractors may impose security measures.
At the discretion of the Revenue Authorities, all types of security measures provided in the TIPC may be imposed, regardless of the declared state of emergency - among them are attachments of bank accounts, foreclosures of real estate, etc. Under the current revision of the Act, it would be possible to attach accounts of natural persons as well, since the prohibition introduced by Art. 5, Para 2 is not relevant to public receivables. In all cases, the imposition of a security measure may be appealed before the director of the respective territorial directorate of the NRA. If the director dismisses the appeal, the decision is subject to appeal before the court. However, the latter possibility is seriously hindered given the state of emergency - the courts do not start new cases and it is not clear when the appeal will be heard.
The new Act does not provide clarity on the issue of whether attachments of bank accounts of natural persons may be enforced to secure public receivables (taxes and social security contributions). Art. 5, Para 2 of the Act explicitly provides that accounts of natural persons cannot be attached. On the other hand, § 49 of the transitional and final provisions provides that proceedings for securing public liabilities remain unchanged except in cases expressly provided for by the Act. Attachment of a bank account is precisely one of the security measures provided for in the TIPC. Given that the securing of public liabilities is admissible, it could be concluded that it also includes the attachment of bank accounts, even of natural persons. Although controversial, our opinion is that at this point the Act allows it. This is also confirmed by the information published on the NRA website.
2. After entry into force of the Act, the suspended enforcement proceedings for the collection of public receivables may also be restarted at the request of the debtor for enforcement on receivables and cash from banks, receivables from third parties, deposited valuables in safe-deposit vaults, including the contents in safe-deposit boxes.
That is, the debtor may ask the public contractor to direct the enforcement to the property rights described above.
5. Will there be a prescription period for public liabilities during the state of emergency?
The short answer is that the prescription period will not run for due public liabilities. Let us bring to mind that there are two prescription periods after which public liabilities are considered to be extinguished and can be written off by the revenue administration. These are 5- and 10-years’ prescription periods.
The new Act provides that both periods shall stop running for the duration of the declared state of emergency (from 13.03.2020 until it is lifted by an act of the Parliament). This provision may have consequences in the future determination of the tax liabilities. In calculating the two periods at a future point, the state of emergency period should be added to the prescription period.
6. Shall audit proceedings initiated prior to declaring the state of emergency be suspended?
Pursuant to Paragraph 49 of the Act, the terms and procedures for establishing, declaring, filing, securing and collecting public liabilities (taxes, social security contributions, excise duties, etc.) remain unchanged. Hence, the terms for all proceedings, the suspension of which has not been expressly specified for by the new Act, continue to run.
Since the audit is a proceeding for establishment of tax liabilities by definition, its terms do not cease to run. This means that it is possible for the revenue administration to continue to collect and require evidence from the obliged persons, as well as to perform the actions provided for in the TIPC.
Therefore, despite the declared state of emergency, the audit proceedings shall not be suspended, an audit report and a subsequent audit assessment for the establishment of tax and social security obligations may be issued.