Is it your case that the state withheld your tax refund? As you know the state paid your interests after a review. Do you know you are entitled to a larger amount?
For example in 2015 – 2017, the interest for withholding excess tax was paid at the rate of 1,05% p.a., the annual interest rate of business loans with the maturity up to 1 year was 2,3% p.a. in 2016 and 2017, (in 2015 it was even 2,36%) according to the CNB (Czech National Bank) statistics. Thus for example in 2016, tax authorities paid a taxpayer the interest amounting to CZK 17,500 for 10 months of examining excess tax of CZK 2,000,000, while when applying a market interest rate, the sum should be CZK 38,333.
The up-to-date decision of the Court of Justice enables you to demand almost a double sum from the Tax Office.
Since 2015, the Tax Offices entitle VAT payers, subject to the examination of the rightfulness of the excess tax (by a tax inspection or procedure to remove any doubts), to receive interest for the period when the deduction was examined, and from the sum which was actually taxed as deduction after the examination. One of the conditions for the establishment of the right to interest is that the examination period exceeded 5, resp. 4 months (as revised from July 1, 2017).
The annual rate of the interest is linked by law with the repo rate of CNB, valid on the first day of each midyear. When calculating the retention of excess deduction interest applied in tax returns, where deadline for submission expired before July 1, 2017, the rate is increased of 1%. At excess deduction applied in tax returns, where the deadline for submission expired after July 1, 2017, the base rate is increased of 2%. Thanks to long-term low repo rates of CNB, the interest was around 1%, resp. 2% p.a. until 2018.
Comprehensive discussions among professionals were conducted on the matter of the level of the interest rate, as it was generally considered to be very low. This April, the Court of Justice of the EU delivered important judgement where the minimal level of the rate was finally clearly expressed. In the Decision in C–13/18 and C–126/18 of April 23, 2020, the Court – put simply – concluded that the interest for retention of excess VAT deduction by tax authorities must correspond to the regular interest, for which the taxpayer could borrow on the free market, and at the same time it must compensate for the loss of retained funds.
The interpretation of the Court of Justice of the EU is fundamentally applicable even retroactively (unless the Court decides otherwise). Since the market-based interests from business loans – despite the general fall in the price of rates – significantly exceeded 1%, resp. 2% in the past, such decision enables taxpayers to retroactively claim granting interest for retention of excess deduction in such amount which corresponds to the market-based interests from business loans in the interest-bearing period.
If your VAT was retained in a higher amount and without authorization, you are entitled to a market rate. We will help you with the request, as we know the communication with the Tax Office is not easy.