The purpose of this memo is to clearly outline the objectives of the Dispute Resolution Directorate and the opportunities available to taxpayers. There is no better way to do this than by referring to the Dispute Resolution Directorate’s own practices to date.
By resolving a tax dispute at the administrative level, the benefits are manifold. Thus, it is in the taxpayer’s best interest to make the most of this—mandatory, after all—preliminary stage. At the same time, however, we must draw attention to the—clearly real—risk that any missteps (already) at this stage could subsequently become an insurmountable burden for the case’s progression to the judicial stage.
Introduction
Seeking justice—including in tax disputes—is not without cost. This is clearly true for the plaintiff, but it is also true for the state itself: in the sense that resources and highly specialized personnel (judges, etc.) are devoted to each case individually. In cases where initiating such a proceeding can be avoided, it is beneficial for everyone to do so.
To a large extent, this purpose is served by the Dispute Resolution Directorate (DRD), as currently regulated by Article 63 of Law 4174/2014 (Code of Tax Procedure - CTP). According to this provision, “the taxpayer, if he or she challenges any act issued against him or her by the Tax Administration or in the event of a tacit refusal, must file an administrative appeal requesting a review of the act within the framework of an administrative procedure by the Internal Review Service of the Tax Administration.”
From the wording of the law, that “if he challenges any act issued against him by the Tax Administration or in the event of a tacit refusal,” one should not get the impression that any act originating from the tax authority is subject to an administrative appeal.
In fact, there will be acts against which an administrative appeal—even though they originate from the competent tax office—will be deemed inadmissible, and therefore such an (erroneous) action will only burden the case with additional effort (and cost).
A typical example—and a frequent occurrence encountered when studying the decisions of the Council of State—is an appeal against acts which, however, do not arise at the stage of determining the financial burden (e.g., a tax assessment or fine) but, for example, at the stage of administrative enforcement. Responses (or tacit rejections) by the Tax Office to requests, e.g., for the write-off of debts, are also not subject to an administrative appeal for the same reason. However, even in cases where the tax is first assessed, the administrative appeal may be deemed inadmissible: as ruled in a recent decision by the Athens Administrative Court of Appeal, in cases of immediate tax assessment (i.e., when the tax is determined without further action, simultaneously with the filing of the tax return), this does not constitute an act that may be challenged by an administrative appeal under Article 63 of the Code of Tax Procedure.
In all other respects, the filing of an administrative appeal—for acts for which such an appeal is provided—is established by law as a necessary preliminary step for the subsequent challenge of the act before a court. A direct challenge of the act before a court will be dismissed as inadmissible (the exceptions are truly few and far between, and mentioning them would confuse rather than help the reader in forming the “big picture” on the issue).
To be precise, in fact, the decision of the Administrative Court of Appeal (which dismissed—in whole or in part—the administrative appeal against the original act) will be challenged before the Court. Failure to respond within 120 days is also considered a rejection. It is therefore necessary to elicit a “decision” from the Administrative Court, which (i.e., the decision) will subsequently—and to the extent that it does not satisfy us—be challenged in court.
However, even if the administrative appeal is not accepted in its entirety—and thus the case is not resolved at the administrative level— the proceedings before the Administrative Court of Appeal still serve another purpose: they constitute a preliminary “screening” stage for all cases that are to be brought before the courts. With the Tax Appeals Board’s reasoning, which will henceforth accompany the case, it will have passed through an initial review that highlights the key issues. This accelerates the administrative proceedings, and the taxpayer—provided that a favorable ruling is likely at the judicial level—will achieve it significantly sooner. It is, moreover, common for cases to be remanded by the Administrative Court to the competent tax authority for the collection of further evidence, and so on. If the proceedings before the Administrative Court did not exist, this burden would fall on the Court. In this regard, in any event, the case is brought before the Administrative Court in a more “mature” state.
For these reasons (resolution of disputes at the administrative level and, in any event, acceleration of administrative proceedings once the case is brought before it), the law establishes the appeal before the Administrative Court as a necessary preliminary step for challenging the act in court.
Do I have a chance before the Administrative Court?
The numbers are perhaps the most appropriate answer: the average percentage of Administrative Court decisions for the years 2018 and 2019 that uphold taxpayers’ appeals is 40%. In other words, in about half of the cases, they will be resolved at the administrative level and there will be no need to appeal to the Administrative Courts, with all that this entails.
However, to be honest, the aforementioned percentage (40%) corresponds to administrative appeals that have been reviewed. We should note here that, if no decision is issued on an administrative appeal within 120 days of its submission, it is presumed that the decision on it is a rejection (which “rejection” and may subsequently be challenged in the Administrative Courts). Therefore, we are not referring to 40% of all administrative appeals but to 40% of the administrative appeals to which the Administrative Court of Appeal has explicitly responded (acceptance/partial acceptance/rejection).
This fact, however, does not significantly alter the conclusion that the chances of success in the context of filing an administrative appeal before the Administrative Court of Appeal are high. This is because for the years 2017–2019, the average rate of implicit rejections was only 8%. Consequently, few administrative appeals were ultimately not examined by the Service. Moreover, the trend observed in recent years is that the Tax Appeals Board (TAB) strives to rule explicitly on appeals. It is indeed telling that just a few years ago (for the years 2014–2015), the average rate of implicit rejections stood at 44%.
Among the cases the Administrative Court of Appeal has been called upon to review, subsequently granting the taxpayer’s request, we first identify those in which a favorable ruling appears predictable, because, for example, the tax authority ruled contrary to established case law of the Administrative Courts or the audit contained an obvious error (for example, during the seizure of books and records). Indeed, having observed a “by profession,” a large number of tax cases, there are many instances where the Tax Appeals Board draws the attention of the competent authorities to issues it observes are recurring and amenable to a horizontal approach, already by the Financial Services, through the issuance of circulars.
However, there are also cases in which the taxpayer is (already) vindicated before the Tax Appeals Board, without this being a “glaring” case of error or omission on the part of the tax authority. In these less “obvious” cases, it is necessary to first outline the approach, the relevant case law, and the general legal documentation supporting the taxpayer’s position through the administrative appeal. This is because, in every case, the Administrative Court of Appeal (ACA) bases its decisions on the case law established up to that point, in conjunction with the applicable provisions and circulars of the tax authority. Rarely does the ACA “break new ground.”
Thus, practice shows us that, at the level of the Tax Court, complex issues regarding asset appreciation have indeed been resolved in favor of the taxpayer (e.g., deposits/transfers into an individual account, joint account issues, where it was determined, however, that the deposits pertained to the non-audited party), cases of fictitious invoices (based primarily on the recipient’s good faith but also on the audit report’s inadequate reasoning), stamp tax issues (e.g., on loans and cash facilities to and from shareholders of public limited companies), disputes regarding the basis for challenging the audit opinion where the auditor “rejected the books” or was not even provided with them and proceeded to an extra-accounting assessment, cases of challenging comparative data for the determination of real estate transfer tax, inheritance tax cases where the tax has already been paid before a court decision is issued declaring the will invalid (on the basis of which the inheritance tax was calculated and paid), and so on. Issues are also resolved in favor of the taxpayer on the basis of invoking force majeure (e.g., loss of the cash register due to theft, destruction of books and records due to fire/flood, failure to fulfill obligations due to serious illness, and so on).
Moreover, there will also be cases in which, in reality, sufficient case law has not yet been established, particularly in the case of “new” provisions. A prime example is the General Rule Prohibiting Abuse (GRPA), which was introduced by Article 38 of the Code of Tax Procedure (CTP—Law 4174/2013). Indeed, in such cases, the Administrative Court will rule without having the ability to apply a broad body of case law on the same issue (see also Administrative Court of Athens Decisions 1356/2020 and 1050/2020). It is no coincidence that, even within legal circles, such decisions attract the greatest interest, as they provide an initial ruling on the specific issue.
In this regard, the appeal before the Administrative Court of Appeal, aside from being mandatory for a specific category of cases, also constitutes a real opportunity for the taxpayer. It would be wise to take full advantage of this opportunity.
Can I file an administrative appeal without consulting a lawyer?
An administrative appeal may be filed without the assistance of a lawyer. Despite any formal requirements (procedural matters, documents to be submitted, etc.), it is not particularly difficult for the taxpayer—especially after conducting some research on their own and following informal communication with the Tax Authority—to file the administrative appeal on their own and even receive a response to it.
It goes without saying, of course, that in such cases, the appeal will not be drafted with the same care as it would be by a legal professional. The taxpayer cannot be constantly up to date on the latest developments in case law, the practice of the Administrative Court of Appeal, and the Administration’s documents (circulars, guidelines, decisions), which may indeed prove useful in the case at hand.
On the other hand, it is equally true that it is not impossible for a taxpayer to obtain a favorable decision through such a “cost-free” administrative appeal. This is because it is not impossible, for example, the official examining the administrative appeal may be familiar with certain case law, and thus this lack of knowledge on the part of the taxpayer may have no consequences. Furthermore, it is true that the Administrative Court of Appeal tends to “uphold” administrative appeals in which no grounds are invoked that would lead to their acceptance (e.g., even though such grounds actually exist and were simply not stated due to ignorance when drafting the appeal) or the correct provision is not invoked. In such cases, in view of the purpose of the Service (DED), namely the immediate resolution of disputes that can be resolved at the tax administration stage, deficiencies are examined ex officio (i.e., even if not raised by the appellant—see, e.g., Athens Tax Court 1545/2019) or even if the appellant does not request a modification of the fine in accordance with the applicable provisions (see, e.g., Athens Tax Court 1374/2019 regarding a fine for fictitious invoices).
However, although as noted above the assistance of a lawyer is not necessary (we have seen that there are cases in which the taxpayer may indeed be vindicated without even having cited the appropriate grounds), it remains strongly recommended. In particular, the larger the amount at stake, the more it is in the taxpayer’s interest to consult a lawyer, who will know the arguments that can and should be raised, the relevant provisions that will support them, but will also draw the attention of the official reviewing the appeal to case law or administrative acts (including previous decisions of the Council of State) that the official may be unaware of and that favor the appellant’s position in the specific case. Experience has shown us that the Administrative Court of Appeal refrains from examining claims of unconstitutionality alone, leaving that matter to the judicial branch (the most notable example being the invocation of grounds tending toward the unconstitutionality of ENFIA—Law 4223/2013). All other claims, therefore, are critical.
However, it is highly recommended to seek specialized legal advice as early as the administrative appeal stage, for the following reason: it is possible that certain grounds, which were not raised in the administrative appeal, may not even be considered if they are raised for the first time before the Administrative Court. In essence, the opportunity to challenge them is lost forever. It is certainly true that, over time, this issue has been mitigated (in the sense that courts no longer reject all claims raised for the first time before them, i.e., without having been previously raised before the Administrative Court of Appeal). However, there are still “arguments” that must first be raised before the ECHR in order to be used for the first time before a court.
In Conclusion
The administrative appeal, therefore, equips us with the tools we will need throughout the entire process of challenging an act of the tax authority. A careless first step is likely to have repercussions throughout the entire process and complicate the lawyer’s task, who will then be called upon, at the stage of judicial challenge, to defend the taxpayer’s rights. There are many cases in which, by the time the client finally turns to a lawyer, the lawyer is essentially “handcuffed” due to the shortcomings of previous stages, the burden of which they inherit upon taking the case.
But even in the case of a tax audit—that is, prior to the issuance of the assessment notice— the absolutely appropriate course of action is to seek advice from a tax lawyer (from this stage onward, i.e., upon notification of the audit order). In addition to drafting responses to the audit findings memorandum (AFM), other actions—both before and after—will also be strategically critical, with the focus always on challenging the tax and/or any penalty that may be imposed.
In this regard, for example, in order for the taxpayer to effectively exercise their right to defend themselves against the Authority’s actions, the applicable provisions require ensuring that they have the most complete information possible regarding the actions on which the audit bases its findings. A specialized legal advisor knows exactly which documents they may request from the tax authority, as well as the circumstances in which they are entitled to request its cooperation, with the authority, of course, being obligated to grant their request. What is particularly noteworthy—and of significant practical importance—is that any failure by the tax authority to respond to such requests from the taxpayer (even if due to mere negligence on the part of officials), during the audit stage itself, adds yet another arrow to the taxpayer’s quiver for successfully challenging tax assessments in the context of administrative appeals, etc. (See Athens Administrative Court of Appeal 955/2017).
* Yannis Psarakis (Ph.D. candidate, Law School of the National and Kapodistrian University of Athens – M.A. III) is an attorney, partner at the law firm Psarakis | Kefalas (www.psarakislegal.com), founder of Psarakis Trademarks (www.psarakis-trademarks.com), and administrator of the IP portal “The Trademark Hoop” (www.thetrademarkhoop.com).»