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Possible reduction of income tax advances

A system for supporting taxpayers struggling with the consequences of the coronavirus pandemic is being developed at the government level and will probably soon take effect. But taxpayers in difficulty may already draw on existing support instruments. One of them is reduction of income tax advances.

Who is affected?

Reduction of income tax advances may be applied to corporate income tax (CIT) payers or personal income tax (PIT) payers if the advance against income tax would be disproportionately high in relation to the anticipated tax on income or profit due for the given year (in practice, at the end of the tax year) (Tax Ordinance Art. 22 §2a). The institution of reduced income tax advances also applies to advances paid in simplified form.

Who decides?

The tax authority is authorised to reduce tax advances. The procedure is initiated upon written application of the taxpayer filed with the tax office.

When can an application be filed?

An application for reduced advances against income tax may be filed at any time in the tax year. However, it cannot affect unpaid advances for which the payment deadline has already passed (as these are regarded as tax arrears).

What are the conditions?

The tax authority may apply the institution of reduced tax advances if the taxpayer makes a showing that the advances would be disproportionately high compared to the income tax anticipated to be due for the tax year. The taxpayer’s application must provide an appropriate justification. The existence of a threatened epidemic and the related limitations on business operations should be regarded as a valid interest of the taxpayer providing grounds for seeking to reduce the collection of advances against CIT and PIT.

Decisions by the tax authorities on these cases are discretionary, and the tax authority may refuse to award relief even if it agrees with the taxpayer that a valid interest of the taxpayer speaks in favour awarding relief. It should nonetheless be expected that under the current circumstances, tax authorities will be inclined to grant such applications.

What should the application contain?

The taxpayer prepares the application itself. There is no official form for the application. In addition to the taxpayer’s details and the relief sought, the written application must show why the advances calculated according to the rules set forth the CIT Act or the PIT Act would be disproportionately high compared to the tax due on the anticipated income for the year. Merely indicating the existence of the coronavirus epidemic may not be sufficient in itself, although it may be the underlying basis for the justification.

What is the deadline for deciding the application?

The taxpayer’s application is resolved by way of a decision. The decision granting or denying such an application should be issued without undue delay, but no later than one month after filing of the application, or two months in particularly complicated cases.

Under the current socio-economic conditions, this period may seem long, but in the longer view this solution may offer measurable relief to taxpayers experiencing declining revenues (including taxable revenues). In practice, the taxpayer may be able to pay a reduced advance immediately after filing the application. If the tax authority subsequently grants the application, the procedure should not have any negative consequences for the taxpayer. If the application is denied, the taxpayer will then have to pay interest on delay.

Joanna Prokurat, tax adviser, Tax practice and State Aid practice, Wardyński & Partners