Penalty for a tax offence

What it means

A penalty punishes a breach of duty in tax administration: a return not filed or filed late, a missed registration, records not kept, documents not produced during a tax audit, or tax assessed higher than the taxpayer declared.

A penalty is not default interest. Interest is the price of money the state did not get on time and runs on the unpaid amount; a penalty punishes the breach itself and arrives even when the tax has been paid to the cent.

A tax delict is an administrative offence with strict liability: nobody asks whether the error was deliberate, it is enough that the duty was not met. What separates it from the criminal offence of tax evasion is exactly that it concerns no individual’s guilt, only a breach of duty by the taxable entity.

How it works in practice

On an additional assessment the rate is graded by who found the error: lowest when the taxpayer corrects it in a supplementary return, higher once an audit has started, highest when the administrator assesses the difference itself.

The penalty comes as a decision that can be appealed, and the time to pay runs from its delivery. Where the duty breached is a non-monetary one, the first step is usually a call to put it right, and a waiver of the penalty can be requested with a documented reason.

A penalty paid is not a tax-deductible expense and belongs among the add-back items in the return. We therefore book it to a separate account, so it stands out when the return is prepared and does not get mixed in with ordinary administrative fees, which are treated differently.

What to watch out for

Silence is the expensive option. A penalty for an unfiled return lands even when the tax itself is paid, and an ignored notice adds another, because the same duty can be sanctioned again and again until it is met. An answer inside the deadline costs an hour.

Penalties are counted per duty, not per event. If neither the VAT return nor the VAT control statement goes out when the accountant changes, those are two separate breaches with their own sanctions, though the cause was one: nobody had the deadline in a calendar.