No active repentance for unauthorized application of VAT deduction

In August 2017, the Constitutional Court of SR ruled that in case of unauthorized application of VAT deduction, there is no longer applicable active repentance pursuant to Section 86 paragraph 1 (e) of the Criminal Code effective from 1 January 2006.

For the sake of clarity, it should be noted that between 1 January 2006 and 30 September 2012, Act no. 277 of the Criminal Code listed two offenses:

• non-payment of tax due
• unauthorized application of VAT deduction

The Act no. 86 (1) e) of the Criminal Code referred to Act no. 277 of the Criminal Code without specifying whether it concerns only one or both of these offenses. From 1 October 2012, the Criminal Code defined specifically the offense of unauthorized application of VAT deduction (tax fraud) in Act no. 277 (a), which no longer allows active repentance regarding this offense.

The Constitutional Court allowed in the judgment I. ÚS 212 / 2017-65 from 2017 the assertion of active repentance for the period from 1 January 2006 to 30 September 2012 pursuant to the valid Criminal Code, but active repentance can be applied only by subsequent payments of tax that had not been paid. According the Constitutional Court, however, this cannot occur by unauthorized application of VAT deduction, because at the time of this action, it is not considered as tax due.

In such case, the taxpayer has claimed the right to a VAT refund without justification, and later corrected the claim by a subsequent tax return and paid the tax back to the state.

For the sake of completeness, we want to point out that an earlier decision of the Constitutional Court from 2011 had allowed active repentance in case of unjustified application of VAT deduction, but this interpretation has been changed by the quoted judgment of the Constitutional Court from 2017. We recommend the taxpayers to comply with the most stringent requirements when claiming VAT deductions tax deduction, because errors might lead to a criminal court.

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