In its judgment No. 2 Afs 234/2022, the Supreme Administrative Court addressed whether ongoing civil proceedings may suspend the limitation period for tax assessment under Section 148(4)(b) of the Czech Tax Procedure Code.

The case concerned gift tax on an amount of CZK 30 million. The taxpayer argued that the tax authority's right to assess the tax had already become time-barred. However, during the relevant period, civil proceedings were underway to determine whether the payment in question constituted a gift or a loan.

The Supreme Administrative Court confirmed that civil proceedings may suspend the limitation period for tax assessment. However, not every link between a civil dispute and a tax matter is sufficient. The civil proceedings must concern an issue that is essential for the correct assessment of the tax, such as whether a particular transaction or payment is taxable at all.

An interesting aspect of the judgment is that, according to the Court, it is not decisive whether the civil court ultimately issued a substantive ruling on the matter. In this case, the civil proceedings were discontinued after the claimant withdrew the action. Nevertheless, this had no impact on the suspension of the limitation period, because the determining factor is the nature of the issue being examined in the civil proceedings, rather than the outcome of those proceedings.

The judgment is particularly significant in practice where civil litigation runs parallel to tax proceedings and concerns the validity, nature or existence of a legal act on which the tax liability is based. Where the civil proceedings relate directly to the underlying taxable basis, they may have a direct impact on the running of the limitation period for tax assessment.

Author: Jan J. Šlajs