Péter Barta

There is no use of winning a lawsuit against the tax authority if the enterprise goes bankrupt before the judgement is rendered. And such an outcome is by no means uncommon, as under the current laws the tax authority can initiate enforcement proceedings against a business while the suit is still in progress. What’s more, experience shows that the tax authority doesn’t shy away from enforcement even in the absence of the solid legal grounds for pursuing that route.

The tax authority’s second-instance decision assessing a tax debt is a final and enforceable decision. This means that the tax debt assessed by the tax authority and approved upon an appeal may be enforced by the tax authority against the taxpayer even if the taxpayer disputes it and takes the decision to court. It is good to know that the tax authority has both a dedicated team and an IT system – for the purpose to watch and wait for the day the decision becomes enforceable, and that collects the funds from the taxpayer’s account the very next day. The tax authority is not even obliged to notify the taxpayer that collection has been ordered, so taxpayers can often find themselves in the unpleasant situation of wanting to make a payment from their account only to find that there are no longer sufficient funds on the account for them to do so.

Enforcement can also cause serious problems for taxpayers over the longer term: there aren’t many taxpayers who wouldn’t miss the funds snatched from their account through enforcement. In several cases taxpayers have actually gone bankrupt due to the enforcement of the tax authority’s decision before having a chance to pursue their claim in court. The tax authority’s enforcement option also gives rise to an unequal situation in the litigation process: here, it is the taxpayers who are chasing their money; it is them who are in a vulnerable position and it is them who have a vested interest in the court proceeding and its rapid completion.

So how can you protect yourself?

In light of the above, it’s no wonder that one of the key junctures in the struggle between the taxpayer and the tax authority is fending off or delaying the tax authority’s enforcement option. There are several ways to do that. When filing a complaint against the tax authority, in their statements of claim, the taxpayers can request the court to suspend enforcement. If the court upholds the claim, enforcement cannot be carried out until the court has passed judgement. Unfortunately, courts only decide to suspend enforcement in a relatively small number of cases – and the reasons and methods that help to achieve such suspension usually differ from court to court and from judge to judge. Moreover, the request must also be timed carefully: although taxpayers have 30 days from delivery of the tax authority’s decision to file a complaint, the decision becomes enforceable on the 16th day. In other words, if someone files its complaint on the 20th day, it’s possible that even if the court decides to suspend enforcement, the tax authority will have already ordered it.

The taxpayer may also submit a request to the tax authority for payment in instalments or for deferred payment. However, when it comes to evaluating such requests, the tax authority is even stricter and more rigid than the courts, and rarely grants such a request.

Who gains time, gains life. This is particularly true when it comes to requests for the suspension of enforcement: even if such requests aren’t successful, enforcement cannot be carried out while they are being evaluated. What’s more, all these decisions can be appealed one by one, and this takes time, which also gives the taxpayer some breathing space. And by the time all options have been exhausted, the taxpayer may – with some luck – get to the point where at least the first hearing takes place.

If the tax authority collects unlawfully

Regrettably, the experience of recent years shows that there are many cases where the tax authority enforces a decision without an appropriate legal basis for doing so. Perhaps due to an administrative error or for some other reason, the tax authority may submit a collection order against the taxpayer’s account during a period when enforcement has been suspended under a point of law. And that can indeed come as a nasty shock to the taxpayer.

Although it is possible to seek remedy, usually in the form of an objection to enforcement, if the tax authority takes such action, this takes time to evaluate. Quite often the taxpayer misses business opportunities during this period, and may ultimately go into liquidation. And even if ordinary operation can be restored later on, the taxpayer has very little chance of being reimbursed for the resulting loss.

OK, so what’s the conclusion?

One of the most important stages in the tussle with the tax authority is when the tax authority’s second-instance decision becomes enforceable – regardless of whether the taxpayer challenges the decision in court. Therefore, it is a good idea to collect arguments in advance so that the taxpayer will have a fighting chance of requesting either the court or the tax authority to suspend enforcement or perhaps grant a deferral of payment. And at least as important as this is to have a fall-back strategy in place to prevent immediate enforcement if these efforts prove unsuccessful.

Looking at the issue from a broader perspective, one cannot be certain of the effectiveness of a legal environment that does not give taxpayers a solid opportunity to assert their opinion (different from that of the tax authority) in a court of law – an environment that is actually far more suited to bleeding the taxpayer white first. Legislators should think about whether maintaining the situation in its current form is, in any way, justified.