The Finnish Supreme Administrative Court published its decision in a case regarding the VAT penalties for conflicting VAT returns filed for the same period. In its decision, the Supreme Administrative Court examined whether the tax increase imposed for the incorrect VAT return was appropriate.

Background of the Case and Court Decision

In January 2023, A's accountant submitted a VAT return in which both the VAT payable of EUR 11,848 and the corresponding deductible VAT were reported. However, in February 2023, a light entrepreneur service that A had previously used but forgotten to deactivate automatically filed a replacement return showing zero VAT, since no invoices had been issued through the service during 2022. A argued that this second return was unnecessary and that he had been unaware it was filed.

After receiving the replacement return, the Tax Administration requested an explanation and subsequently determined that A had filed an incorrect VAT return. It assessed VAT of EUR 11,870.38 and imposed a 10% tax increase of EUR 1,187.04.

A appealed, arguing against the assessed VAT and the 10% tax increase. While the Tax Adjustment Board accepted A's arguments and removed the tax increase, the Taxpayers' Legal Supervision Unit (Supervision Unit) challenged that decision, arguing that the tax increase should either be reinstated at 10% or reduced to 3%.

The Helsinki Administrative Court dismissed the appeal, concluding that a 10% penalty was clearly disproportionate given that the error resulted from an unintended duplicate filing rather than deliberate misconduct. The Supervision Unit appealed the decision to the Supreme Administrative Court, seeking to overturn it.

After examining all the facts, the Supreme Administrative Court found that the incorrect VAT return resulted solely from theA's failure to revoke the authorization previously granted to the light entrepreneur service. Nonetheless, the Court also considered that the service itself should have verified the accuracy of the return with the A before submitting it, particularly since it knew no invoicing had occurred through the service. Due to its findings, the Court upheld the Administrative Court's decision to eliminate the tax increase.

Conclusion

While the Supreme Administrative Court upheld the elimination of the tax increase imposed on the taxable person, it also confirmed that a standard 10% VAT penalty applies as the default rule whenever a taxable person files an incorrect or incomplete tax return, fails to file a required return, or omits required tax information, resulting in additional tax being assessed. This penalty is reduced to 3% if the issue is legally ambiguous or if the full penalty would be disproportionately harsh due to special circumstances.