Economically active people have certainly noticed that State Revenue Service (AT) regularly reports on tax control measures, including tax audits performed, as well as the fact that tax surcharges determined as a result of SRS audits are contested. “We will sue!” – this is often the first reaction to an unfavorable SRS decision. However, neither in the public space nor among specialists has there been structured information on the results of contesting tax audits, namely, how often taxpayers manage to “win” the SRS about audit decisions.
–
–
Content will continue after the ad
Advertising
–
Statistics show that 497 tax audits were performed in Latvia in 2017, but 738 a year later, but already in 2019 – 885. In Lithuania, the number of audits is very similar, although slightly smaller, while in Estonia more than 3 thousand audit, but it should be noted that in Latvia and Lithuania the tax administration uses a number of other tax control mechanisms, while in Estonia audits are the basic type of control.
In Latvia, within the SRS, ie before the court, more than half of all audit decisions are contested, for example, in 2017, 70% of decisions were contested, in 2018 – 46%, but in 2019 – 55%. Thus, taxpayers often disagree with audit decisions and actively exercise their right to challenge them. There is also a rational reason for this, because when appealing the audit decision, the payment of the surcharge tax and sanctions is postponed. In Lithuania, significantly fewer decisions are challenged within the tax administration – about a quarter, but in Estonia even less – only 2-3%. What are the results of this challenge effort? Here we see that only a very small part of audit decisions are fully revoked within the SRS – in the case of Latvia only 0.7% in 2017, 2% in 2018 and 3% in 2019. In Lithuania, these figures are relatively similar, ranging from around 1 to 4% per year, while in Estonia there are slightly more percentage of decisions annulled, but only in the range of 4 to 9% per year.
The next step is to sue for adverse decisions. In 2017, there were 311 judgments on tax audit cases in Latvia, 331 judgments in 2018 and finally 385 judgments in 2019. Here we see that with these judgments the courts have annulled only a small number of audit decisions, namely, 9 – in 2017, only 4 – in 2018 and 18 – in 2019, or only 3%, 1% and 5% of appeals have been successful. case by year. In Lithuania, courts are more accommodating to taxpayers, revoking audit decisions in up to, for example, 34% of all court judgments in 2019. In Estonia, courts have given a positive decision to taxpayers in 4-11% of cases, depending on the reporting year.
It must be concluded that, especially in Latvia, the decisions of the SRS remain largely valid and the determination of taxpayers to challenge them usually does not lead to success. Several conclusions can be drawn here. First of all, taxpayers must be very careful about paying taxes in order not to get an audit initiated at all, but if it is already started, then try to cooperate as much as possible with the SRS to explain their position and achieve a successful solution or lower surcharge during the audit process. .
In other words, statistics show that taxpayers should not rely on the possibility of successfully challenging decisions at a later stage. This does not mean that audit decisions do not need to be challenged in the SRS or in courts – cases when it is reasonably certain to exist, but the power of argumentation to challenge must be carefully assessed. It should also be noted that our study does not offer any conclusions as to the extent to which audit decisions have been fair or not – we have compiled comparable facts at the Baltic level, but do not express an opinion on the content of decisions or judgments.
Regarding other significant differences in the appeal of audit decisions between the Baltic States, it must be said that although there are no precise statistics on the length of the overall appeal process and we have only summarized our experience, it shows that this process is the longest in Latvia – 4-5 years.
There are also significant differences in national approaches to when to pay audit fees and interest. Although in Estonia, as in Latvia, surcharges are payable immediately after the audit decision, in Estonia this burden is offset by the generous interest that the tax administration has to pay to the taxpayer if the court finds that the surcharge was unjustified. In this respect, in Latvia, the taxpayer’s interest (arrears) payable to the SRS is higher than the SRS pays to the taxpayer in the reverse case. In Lithuania, for example, the surcharge is payable only after the final court decision has been made, the rest of the time interest is calculated. Thus, it can be concluded that in Latvia the regulations are the strictest and the SRS has the most weapons so that the taxpayer does not appeal the surcharge.
It is also interesting that in Lithuania it is possible to discuss the amount of the surcharge during the audit process. Although the scope of the agreement is not stipulated in regulatory enactments, practice shows that it is possible to agree on a reduction of the surcharge tax and sanctions by 30% and even in rare cases in the amount of 50% of the initial amount.
In the case of Lithuania, a positive experience with the Tax Disputes Commission of its special institution, which is comparable to a court, can be highlighted, however, its decision can be further challenged by the taxpayer or the tax administration in court in the usual manner. As it has gained a high degree of credibility in the eyes of taxpayers and the tax administration, the parties often do not appeal the decision in court, but make the final decision of this institution. This saves time and resources. It is possible that Latvia would also benefit from the introduction of a similar practice, which would reduce the workload of the Administrative Court and shorten the appeal process.
–
