Legal Alert – Finnish Supreme Administrative Court’s Ruling Clarifies the Acceptable Legal Consequences for an Error in Tax Return
The Finnish Supreme Administrative Court (SAC) on 10 February 2016 issued three rulings on the scope of application of a tax increase, two of which were precedents. From the taxpayers’ view, the most significant is ruling 2016:15 in which the SAC ruled that a punitive tax increase in percentage points was an acceptable consequence for an error in the tax return form.
In the Finnish tax legislation, the tax increase in income taxation is graduated. The law provides for punitive tax increases in three categories. In the first two categories the tax increase is a fixed sum amounting to a maximum of EUR 800. In the third category, however, the tax increase is calculated by applying a percentage of up to 30% of the income added.
The punitive tax increase of a maximum of EUR 800 is applied when the taxpayer has given a substantially incomplete or incorrect tax form. The percentage punitive tax increase can only be applied if the taxpayer has given a substantially incorrect tax form knowingly or out of gross negligence. Drawing a line between the second and third category has not always been easily foreseeable.
In its ruling 2016:15, the SAC considered which type of tax increase was the legal consequence in a case where a company had not reported a group contribution on the main tax form, although that contribution was reported on the appendix tax form. In its decision by a 3-2 vote, the SAC ruled that a percentage punitive tax increase was a legal consequence for negligence in completing the tax return. The majority reasoned, among other things, that in an automated tax assessment procedure the taxpayer’s responsibility is highlighted, and that the lesser tax increase of EUR 800 would be virtually insignificant to large corporations.
The Finnish Tax Administration issued an announcement on the SAC rulings on 17 February 2016. The Tax Administration emphasizes the importance of the main tax form, which is to be completed with all essential taxable income and expenses considering the nature and scope of the company’s operations. According to the announcement, failure to do so may result in a percentage punitive tax increase even if that information is given in an appendix tax form.
The percentage between 0% and 30% applied to the tax increase should be evaluated on a case by case basis, and in many occasions, tax increases assessed by the Tax Administration have been lowered by the courts.