During a tax reassessment, who bears the burden of proving which party is right? Is it the taxpayer or the Tax Administration of Kosovo (TAK)? This fundamental question, which concerns the balance between administrative authority and individual rights, often has no straightforward answer in practice, as taxpayers are frequently required to prove their own “innocence.”
In Kosovo, despite the efforts of the new Law on Tax Administration and Procedures to establish a balanced allocation of the burden of proof, the situation in practice remains inconsistent, frequently placing fundamental guarantees of legal certainty at risk.
Legal Framework in Kosovo: Articles 114 and 15
Law No. 08/L-257 on Tax Administration and Procedures introduces an allocation of the burden of proof between taxpayers and the Tax Administration.
Article 114 – Burden of Proof
“The appellant (taxpayer) bears the burden of proving that the decision, assessment, or determination against which an appeal has been filed is incorrect.”
“The Tax Administration of Kosovo and the DK bear the obligation to establish the facts supporting the decision and opposing the taxpayer’s claim.”
This Article seeks to establish a dual allocation of the burden of proof: the taxpayer is required to challenge a decision considered incorrect, while TAK must establish the facts supporting that decision.
However, the Law does not establish specific standards for the assessment of evidence. Consequently, the provisions of the Law on General Administrative Procedure should apply.
Article 15 – Tax Assessment
TAK has the authority to conduct a reassessment based on its “best judgment”, relying on information such as:
- Documentation provided by the taxpayer and third parties;
- Evidence collected during on-site inspections;
- Objective information concerning income or transactions.
This concept of “TAK’s best judgment” has proven problematic in practice because TAK does not always rely on a clearly defined legal methodology.
In the absence of clear standards and effective judicial review, this approach risks allowing unilateral and unjustified decisions.
Frequently, TAK decisions lack sufficient reasoning, contain general statements, and fail to explain the calculation methodology or the sources relied upon to justify the reassessment.
Although it may seem surprising, tax inspectors frequently make calculation errors that result in substantial additional tax liabilities.
In these circumstances, taxpayers find themselves in a disadvantaged position: they are required to demonstrate that they have not made an error without having a clear understanding of the basis for TAK’s assessment.
This transforms the formal allocation of the burden of proof into a factual inequality and undermines the purpose of the Law.
Application in Kosovo’s Practice: Arbitrary Tax Reassessments
Despite the careful wording of the Law, judicial practice in Kosovo reveals a concerning approach: TAK frequently relies on assumptions, while taxpayers are required to establish their “innocence” without being provided with complete evidence supporting the reassessment.
In judgments such as KF.nr.31/2022, KF.nr.274/2022, KF.nr.339/2022, and KF.nr.828/2022, the Commercial Court has highlighted several key problems:
- TAK uses the term “open market value” without supporting documentation or comparative analysis;
- Decisions fail to establish a clear connection between the evidence and the conclusions reached;
- Taxpayers are confronted with insufficiently reasoned decisions that hinder the effective exercise of their right to appeal.
Based on the judgments analyzed, we conclude that TAK frequently fails to explain how it reached its conclusions regarding additional tax liabilities, which methods it applied, and what evidence supported its findings.
In such cases, the facts are incorrectly established, resulting in the incorrect application of substantive law.
It is worth emphasizing that there is not yet any established judicial practice addressing Article 114 of the new Law. However, Article 15 of the current Law is similar to Article 19.2 of the previous Law No. 03/L-222.
The Presumption of Innocence and the Burden of Proof Under European Standards
The principle of the presumption of innocence, as emphasized in the case law of the Court of Justice of the European Union (CJEU), extends beyond criminal law and also influences administrative proceedings that may result in sanctions.
In Case C-277/14, Stehcemp v Director of the Tax Chamber in Łódź (Poland), the CJEU reaffirmed that this principle requires authorities to present concrete evidence to establish infringements rather than relying solely on strict liability.
This is particularly relevant in the tax context, where reassessments are often accompanied by substantial financial penalties.
The practice in Kosovo of automatically imposing penalties following every tax reassessment resulting in additional tax liabilities appears to challenge this standard.
TAK imposes penalties even in cases where it establishes that the taxpayer made an incorrect calculation rather than an intentional misstatement, with the system automatically generating a penalty of 25% of the underdeclared amount.
Furthermore, concerning the tax authority’s burden of proof, Joined Cases C-80/11 and C-142/11, Mahagében kft and Dávid, provide important clarification.
In those cases, the CJEU emphasized that the tax administration cannot deny tax benefits merely on the basis of suspicion. Instead, it must establish the existence of fraud through reliable evidence and, in certain circumstances, demonstrate the taxpayer’s knowledge of that fraud.
This principle implies that the tax authority bears the initial burden of providing evidence to support its allegations.
In the context of tax reassessments in Kosovo, this suggests that TAK should present sufficient evidence and clear reasoning to justify a reassessment, particularly where it adversely affects the taxpayer.
The absence of detailed reasoning by TAK, as described above, is inconsistent with this European standard, making it difficult for taxpayers to exercise their right of defense and further increasing their evidentiary burden.
Due to the lack of clear reasoning in administrative decisions, courts have frequently been unable to determine how TAK reached its findings. Consequently, they have remanded cases for reconsideration, requiring TAK to clarify and adequately substantiate its decisions.
Practical Advice for Taxpayers
If you are subject to a tax reassessment, particularly where TAK refers to “open market value” without providing adequate justification, consider the following steps:
- Request official clarification: Ask TAK to provide the methodology, sources, reasoning, and working papers used in the reassessment.
- Collect evidence to challenge the reassessment: Prepare supporting documentation, such as comparable market prices, independent valuation reports, or relevant invoices, to the extent available. If the matter proceeds to court, you may request the appointment of a financial expert.
- Highlight the absence of supporting evidence in TAK’s findings: Clearly address evidentiary deficiencies in your administrative appeal or statement of claim, as these may constitute decisive factors for the relevant review body or court when deciding in your favor.
Hypothetical example:
If a retail store is reassessed by TAK because its selling prices are lower than the alleged “market value,” without an explanation of which stores were used for comparison, the taxpayer has the right to request additional information and submit evidence justifying the difference.
Such evidence may include promotional offers, geographical location, seasonal conditions, or other relevant commercial circumstances.
Fairness in taxation begins with a simple principle: no one should bear the burden of blame without evidence.
When tax reassessments are based on suspicion rather than evidence, and penalties become automatic rather than proportionate, it is not only the taxpayer who suffers, but also public confidence in the system.
The Law may provide for a fair allocation of the burden of proof, but only the honest and responsible application of this principle can guarantee justice.
Author: Florin Lata
