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Opinion of Ingūna Ābele: Amendments required in the VAT refund procedure

As concerns the refund of overpaid taxes in Latvia, the legislator has provided for a comparatively extensive freedom of action to the State Revenue Service (SRS) – the regulatory enactments in the field of tax collection are unilateral, so the SRS systematically takes steps to retain the VAT overpaid by the company for as long as possible without making timely refund of the overpaid VAT to companies.

The law provides for a number of ways, how the SRS can protractedly withhold the overpaid VAT, including by failure to commence a tax audit. If a tax audit has been commenced, in practice, the SRS protracts the deadline of the tax audit as long as possible, often without regard to procedural time limits; however, unfortunately, the court currently does not consider such delays in procedural deadlines to be so essential as to influence the progress of the case. Moreover, no control over the effectiveness and reliability of the use of the time intended for the tax audit by the SRS, and over the actual necessity of the extension of the deadline of the tax audit is effectuated either.

During that period, the entrepreneur becomes the State creditor by force, as the refund of the overpaid VAT is made after completion of all the inspections.

Probably the most effective solution to the problem could be increased liability for the arbitrary activities of the SRS, prescribing the obligation of the SRS to pay late payment interest per each day, starting from the moment when the SRS has commenced additional inspections for the refund of the overpaid VAT, if such inspections result in a finding that the overpayment of the VAT has been justified.

The full article is available here.