When Does the Tax-Assessment Time-Limit Start to Run, and How Does an Arbitral Award Affect It?

When exactly does a tax liability arise, and when can it be corrected? The Supreme Administrative Court recently had to resolve this key question in the case of RI OKNA a.s., which became embroiled in a long-running dispute with the tax administration over corporate income tax for 2015. The case uncovers the fundamental issue of the timing of costs and revenues where a court or arbitral decision retroactively changes the view of completed business transactions.

In 2008, RI OKNA issued its business partner Outulný, a.s. penalty invoices relating to the construction of a production hall, and duly taxed those penalties. Seven years later, however, an arbitral tribunal held that the underlying contracts for work were absolutely void. The company then reduced its 2015 tax base by part of the settlement of unjust enrichment, amounting to over CZK 10 million. Both the tax office and the Appellate Financial Directorate rejected this, holding that the costs related to 2008, not 2015.

The decisive date under the methodological guidance

The company's central argument relied on General Financial Directorate Guidance D-22, under which the tax consequences of court decisions are applied as at the date they become final. The arbitral award became final on 15 April 2015 — clearly within the 2015 tax period. The company even obtained an expert opinion from the renowned advisory firm PricewaterhouseCoopers confirming its approach.

The Regional Court in Brno dismissed the action, reasoning that the company could have filed a supplementary tax return for 2008 after the arbitral award and so had not lost the chance to recover the incorrectly declared tax. The Supreme Administrative Court, however, rejected this approach and set the regional judgment aside.

The court's key argument was that Guidance D-22 is consistent with the law and gives rise to taxpayers' legitimate expectations. The court recalled its earlier case-law under which the administrative authorities were bound to follow the guidance. Unlike the older Guidance D-300, which tied the consequences of absolute invalidity to the date of the original legal act, Guidance D-22 no longer contained such a special rule. The decisive date should therefore have been the date on which the arbitral award became final.

Practical implications for businesses

The judgment is of fundamental importance for any company that finds itself in a situation where a court or arbitral decision retroactively changes its legal position. Where there is an authoritative finding that a contract is invalid, or another decision that changes the view of past transactions, the tax consequences apply, as a rule, as at the date such a decision becomes final, not the date of the original transaction.

The court also confirmed several important procedural principles. A tax inspection commenced before tax is assessed interrupts the time-limit for assessment, just as an inspection in supplementary-assessment proceedings does. The tax administrator is not obliged to draw up formal authorisations of officials for individual acts and place them on file; if a taxpayer does not raise such an objection during the inspection, it will later be regarded as contrived.

On the burden of proof, the court confirmed that, for advertising costs, it is not enough to prove that the advertising took place — it is necessary to show who actually provided it. Holding evidentiary proposals back until the close of the appeal proceedings, when there is no longer time to take the evidence, works to the taxpayer's detriment.

The decision of the Appellate Financial Directorate was annulled and the matter returned for further proceedings. RI OKNA was awarded costs of almost CZK 37,500. The case shows that even where the tax authorities adopt a particular interpretation of the law, the courts may correct it in the taxpayer's favour — especially where it relies on the tax administration's own methodological guidance.

Source: Supreme Administrative Court, 5 Afs 5/2025-78