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Deputy-Ombudsman Sakslin: Tax administration has overridden customer rights

Entrepreneurs' reports on construction work only accepted in electronic format

Deputy-Ombudsman Maija Sakslin finds that the Finnish Tax Administration exceeded its competence when it made a decision to only accept statutory reports on construction work from entrepreneurs in the electronic format.

The Tax Administration's decision on the manner in which the reports must be submitted was made pursuant to a provision on its competence in the Act on Assessment Procedure.
 
Under this Act, penalty charges may be imposed on taxpayers who fail to submit their reports electronically in compliance with the Tax Administration's order. The amount of this charge ranges from EUR 2,000 up to EUR 15,000.
 
- This decision does not meet the obligation contained in the Administrative Procedure Act to guarantee all customers a right to good governance, Sakslin notes.
 
She concludes that customer rights have been overridden by the Tax Administration's strive for efficiency.

A complaint was filed with the Parliamentary Ombudsman by a rural entrepreneur who had found it impossible to submit the report on a construction project due to the poor functioning of electronic communications in the countryside. According to the complainant, it is also not acceptable that entrepreneurs are required to have the equipment needed to access electronic services.

Sakslin finds that under the provision on competence, the order issued by the Tax Administration that entails significant legal consequences for non-compliance cannot be allowed to restrict in this way the manner in which taxpayers liable to report may submit their information to only one method, or electronic format.
 
The Tax Administration justified the restriction to the Deputy-Ombudsman by stating that the use of e-government is a common practice in society.

According to the Tax Administration, the requirement to visit a library or a tax office for the purpose of filing an electronic report cannot be considered unreasonable, as the distance to health care and education services in the northern parts of the country, for example, may be hundreds of kilometres.

The decision was additionally justified by the Tax Administration's strategic goals and cost savings.

Tax Administration exceeded its competence

- The Tax Administration also has capabilities for receiving notifications on paper, Sakslin points out.

According to the Tax Administration's decision on universal reporting duty, the information may be submitted either electronically or on printed forms. A natural person acting as a constructor is allowed to provide the information related to the building project on a paper form.

Sakslin notes that under the principle of legality, which is a fundamental element in rule of law, an authority cannot make decisions on the exercise of public power or otherwise exercise public power unless it has been granted the competence to do so in an act.

As the public power exercised by an authority must remain within the limits specified by the Parliament in an act, and this power may only be exercised by virtue of an act passed by the Parliament, the provision on competence in the relevant act should be interpreted in the narrow rather than an expansive sense.

The assessment of whether or not the Tax Administration's order is legal was influenced by the fact that a penalty charge of a significant amount may be imposed on those who neglect their reporting duty.

Tax Administration's order violates the principles of good governance

According to the principle of proportionality, an authority must choose operating methods that are the least restrictive or constitute the smallest infringement on rights. In particular, this applies to cases where a customer faces adverse legal consequences for non-compliance with an obligation imposed by an authority.

In accordance with the service principle, the customer's needs must be taken into account when in an authority's processes, making sure that the services are accessible and easy to use. The authorities must also provide adequate choice for their customers.

In particular, the exclusive use of electronic services does not account for the possibilities of small enterprises and entrepreneurs to meet their obligations, or promote the equal treatment of taxpayers liable to submit reports operating in different parts of the country.
 
Sakslin's assessment was also affected by the Parliament's review of the Act on Electronic Prescriptions.
 
The duty to issue electronic prescriptions is based on an Act passed by the Parliament. This duty is not strict, however, and the Act does not entail penalties related to the manner in which prescriptions are issued.

On proposal of the parliamentary Social Affairs and Health Committee, the deadlines for introducing electronic prescriptions were also extended to safeguard the activities of individual doctors and small medical centres.

The full text of decision no 4653/2014, (in Finnish).

Further information is available from Principal Legal Advisor Ulla-Maija Lindström, tel. +358 (0)9 432 3355