Increase in default interest - can it be reduced?

At the end of June, the Czech National Bank increased its repo rate again - this time to 7% p.a. The higher repo rate will also have a major impact on the impact on the tax rate under the Tax Code. As of 1 July, default interest is calculated at the rate of 15% per annum. Late payment of tax is therefore more expensive again.

Interest on late payment on unpaid tax starts to accrue from the fourth day after the tax is due. It accrues for each additional day of delay and is calculated on the amount of unpaid tax multiplied by the interest rate (composed of the CNB repo rate applicable on the first day of the calendar half-year, plus a fixed component of 8 percentage points). The tax administrator shall assess interest on late payment if the amount of interest has reached at least CZK 1,000 on the date of payment of the tax due.

The level of the interest rate therefore changes with respect to the repo rate. In 2022, there will be two rates of interest on late payment - 11.75% until 30 June 2022 and 15% from 1 July. Now it is necessary to pay all taxes on time. Interest on late payment is calculated in the same way, regardless of whether the tax is increased as a result of a supplementary return or as a result of a tax inspection. However, filing a supplementary tax return allows up to 20% interest to be waived.

Interest can be reduced if the taxpayer requests a delay in paying the tax. This extends the due date for the tax or its instalment payment, while only interest on the delayed amount is payable for the period of delay, which is only half the interest on the delayed amount. (For the second half of 2022, the interest rate on the delayed amount will be only 7.5%.)

It is also possible to apply for a waiver on the payment of interest due once the tax due has been paid; there is a fee for this application. On the basis of the reasons stated in the application, the tax authority may reduce the interest by 20% or more (or even waive it). When stating the reasons for applying, we recommend referring to Direction D-47, which deals with this issue. If you become aware of a potential tax assessment (for example, during a tax inspection, it is possible to reduce the amount of interest by paying the tax into your tax account before the assessment. With the overpayment subsequently used to pay the tax due, interest on the overpayment will only be calculated to the date of the actual payment of the tax due, not to the date of the assessment of the underpayment.