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Let's take an example

A business submitted a mandatory appendix to its VAT return in the Czech Republic (the famous "VAT Control Statement”).This statement should mention the address and the number of clients in two separate columns. The box “Street” mistakenly contained the client's zip code.

What are the consequences of this typo? 

CZ VAT authorities imposed a fine of 50,000 CZK because the original submission was assessed as failed !! (see aff. 43 Af 6/2020-37)


How do you dispute a fine?

So what should you do when your company receives a VAT fine? Is it possible to contest it?

Yes, with the proportionality test.

You should know that the State's power to impose penalties is not unlimited: it can, of course, impose a fine in the event of a company's failure to comply, but this financial penalty must be proportionate to the seriousness of the offence. To put it another way, the penalty must not go beyond what is necessary to achieve the objectives of collecting the tax correctly and avoiding fraud.

This is the philosophy of the Court of Justice.

To keep in mind

The rules of the VAT game are complex and mistakes made by companies in the management of their reporting obligations (e.g. inclusion of a transaction in the wrong box of a VAT return) are frequent.

The bad news? Each error is usually subject to an automatic and immediate financial penalty.

The good news? The company that has to pay a penalty can defend itself. The penalty imposed by the tax administration must be proportionate to the objectives set by the VAT Directive, i.e. to ensure tax collection and to prevent fraud.

In this respect, the use of the proportionality test can be extremely effective in forcing the tax administration to temper its enthusiasm.