A recent ruling of the Czech Supreme Administrative Court (the SAC) has confirmed that the Decision on tax exemption of income from interests and license fees based on Article 38nd of the Income Tax Act is possible to be claimed retroactively for periods preceding the period in which the application is filed.
The case heard by the SAC dealt with a decision of a financial authority about tax exemption of income from interests and license fees applied for by a tax subject for years of 2011, 2012 and 2013. In 2011 and 2012, the tax subject duly paid withholding taxes from an interest financial instrument and as the payments had been performed between connected persons and all conditions for exemption had been met, the tax subject applied for the Decision about a withholding tax exemption in 2013. The financial authority, however, granted the exemption for 2013 only as in their opinion it was not possible to do so for previous tax periods underlying their decision by stating that the law stipulates that the exemption is conditioned by issuing of the Decision which, therefore, needs to be applied for in advance. The stance was later confirmed by both Appellate Financial Directorate and municipal court.
The SAC did not identify with the above reasoning and stated that the law needs to be explicated in accordance with the EU legislation, which forms basis for the national legislations; specifically, it regards Directive no. 2003/49/ES of the Council which stipulates that tax exemption may be claimed up to two years after the tax in question was paid. Furthermore, the SAC confirmed the fact that a member state has the right to condition the exemption by issuance of the Decision, which, however, only has a form of declaratory certificate confirming that the conditions for the exemption have been met and the right to claim it may be made retroactively. It means that a tax subject may apply for issuance of the Decision about exemption in a period of two years after the tax was paid if all related conditions have been met.
