The Supreme Constitutional Court of Cyprus, in a unanimous judgment, overturned the Administrative Court’s decision that declared invalid the imposition of tax guarantees as a condition for challenging a tax assessment by an insolvent company.
Key facts
The Tax Commissioner had imposed taxes exceeding €250,000 on an insolvent company. These taxes comprised capital gains tax, income tax, and a special defence contribution tax. The insolvent company challenged the decision through a hierarchical appeal before the Tax Tribunal, an administrative (non-judicial) body empowered to assess decisions of the Tax Commissioner. The Tribunal, exercising its discretion, demanded a guarantee to secure tax collection. The company argued that this decision was procedurally flawed and legally unsound.
The decision of the Administrative Court of First Instance
The Administrative Court of first instance considered the relevant provision empowering the Tax Commissioner to demand a guarantee from an insolvent company as a condition for examining a challenge against a tax assessment, namely Section 20A(2)(b) of the Assessment and Collection of Taxes Law (N. 4/78).
It concluded that the Tax Commissioner exceeded his powers, as he did not have the authority to request the provision of a guarantee beyond the preliminary stage of examining the timeliness of the challenge and the payment of the undisputed tax. According to the first instance Court, such a request for a guarantee would only be permissible before the Tax Tribunal proceeds to examine the challenge.
However, in the case at hand, the Tax Tribunal, several months later and after it had already initiated the examination of the challenge, decided to accept the Tax Commissioner’s request and demand a guarantee as a condition for continuing to examine the challenge. This practice was criticized. It was observed that the overall issue was also linked to the speed with which such a decision must be made by the Tax Tribunal to safeguard the alternative legal option provided by the Constitution to challenge the assessment before the courts within the 75-day deadline.
The Supreme Constitutional Court’s decision
The Supreme Constitutional Court disagreed with this analysis and concluded that the Administrative Court had erred in interpreting the law. It observed that the Tax Tribunal’s decision to require a guarantee after receiving the Tax Commissioner’s assessment was consistent with its discretionary powers under Section 20A(2)(b) of the law.
The Court found that the Tax Tribunal acted lawfully in demanding the guarantee as a safeguard against potential non-payment of taxes, particularly considering the company’s liquidation status. It further noted that the Tribunal’s actions aligned with its mandate to ensure effective tax collection while protecting the public interest.
Implications of the judgment
This decision reinforces the Tax Tribunal’s authority to request guarantees in hierarchical challenges filed by insolvent companies, even at advanced stages, ensuring the safeguarding of state revenues. It provides clarity on the procedural application of Section 20A(2)(b) and underscores the importance of balancing taxpayers’ rights with fiscal responsibility.
This judgment is expected to guide future cases involving tax disputes, particularly those involving companies under liquidation, strengthening the framework for tax compliance and enforcement in Cyprus.
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