Until recently, judgements of the Supreme Administrative Court have not allowed a tax loss to be claimed from the beginning until the end of a tax audit. However, it is now permitted…
Unfortunately, it is not clear whether the Financial Administration and individual tax administrators will abide by this judgment. So what was the matter? In late February, the Supreme Administrative Court (SAC) delivered a groundbreaking judgment (No. 9 Afs 41/2013 – 33 of 27 February 2014) ruling in favour of a taxpayer, which stipulated that a tax loss can be claimed during a tax audit or appellate procedure. This is despite the judgement of the SAC’s extended panel of judges (as the most qualified authority to unify judgments delivered by administrative courts) which ruled in the judgement of 27 March 2003 (No. 8 Afs 111/2005 – 106) that a tax loss cannot be claimed from the beginning until the end of a tax audit. This judgment of the extended panel has also been referred to by the tax administrator and later by the Appellate Financial Directorate and the Regional Court. This current ruling goes against the practice. Under the judgment, the legal state on which the previous judgements in the matter relied is different, as the new dispute was held in an appellate procedure under the new Tax Code, which provides a new definition of the objectives of tax administration, which is to correctly ascertain and determine tax and secure its payment. The Regional Court, the tax authority and the Appellate Financial Directorate did not apply the law correctly when they took over without any further conditions the arguments presented in the extended panel’s judgment without taking account of the change in law.
In compliance with the principles, the SAC held that if a taxpayer insists on claiming a tax loss during a tax audit, this fact must be reflected by the tax administration. However, the tax administration is not obliged to deduct the tax loss itself, without any specific manifestation of the taxpayer’s will.
According to our information, tax administrators continue to rely on the conclusions of the SAC provided in Resolution No. 8 Afs 111/2005-106 of 27 March 2007 which does not permit claiming a tax loss during a tax audit. Nevertheless, we are of the opinion that it may only be a question of time before they reconsider their opinion, as was the case of unrealised foreign exchange gains and losses that we introduced to you in one of our previous newsletters. We strongly recommend trying to claim the tax loss in a tax audit or in the appeal.
If you find yourselves in a similar situation, do not hesitate to contact us. We are ready to help you.