Offsetting for the settlement of income tax debt
When the state intends to pay a physical or legal person for a specific reason, such as fees, compensation for services rendered, or a grant, it examines whether the recipient has outstanding debts to any public financial institution or fund, such as income tax. Depending on the amount owed, the state is legally entitled to withhold a corresponding sum to offset these debts. This action is justified, taken within the framework of the law, and is entirely lawful, since a person owing money to the state cannot expect to receive payments from the state without first settling his obligations.
Offsetting is permitted, and any recourse to the Administrative Court seeking annulment of such a decision has no realistic prospect of success, regardless of the arguments presented. This is because no legal rights of the beneficiary are violated, offsetting, as commonly said, is a matter of ‘give and take.’
Legal provision
Offsetting of income and expenses is legislated in a 2014 law, which provides that the General Accountant may, at his discretion, during any payment to a physical or legal person, withhold amounts owed to any public financial body or special fund. To do so, the General Accountant may obtain information and data from government departments to facilitate the offsetting process.
Administrative Court decision
In one case, a polyclinic that issued an invoice for payment of service fees had an amount of €9,789.79 withheld and offset against its income tax debt. The clinic challenged the decision before the Administrative Court, claiming the administrative action was illegal, unconstitutional, and violated property rights, the right to work, and professional freedom. It also argued that the decision was taken by an unauthorised body, without a hearing, and without proper minutes or justification.
The Administrative Court in its decision last month found no merit in the clinic’s arguments and dismissed the recourse. It ruled that the contested action did not constitute a typical administrative act, but rather an automated operation performed through the General Accounting Office’s digital system (offsetting application). The procedure is implemented based on circulars issued by the General Accountant, under the law that governs the offsetting process for debts to various government departments/services/funds.
It emphasised that the offsetting was not carried out by an unauthorised body but by authorised system users acting on instructions from the General Accountant. According to the law, which empowers the General Accountant to issue circulars, any powers or duties may be delegated to employees acting under their instructions. Therefore, there was no need for individual written authorisation for a specific official to perform offsets, given the existing legal provisions and procedural framework outlined in the circulars.
Court’s conclusion
The polyclinic did not dispute that the amount owed was final and confirmed, nor did it claim it was subject to any administrative or judicial proceedings. Moreover, it had issued the invoice and was seeking its payment. Consequently, the administration acted lawfully when it proceeded with the offset in question.
The court concluded that there was no need for the issuance of formal regulations, as the circular instructions provide a sufficient regulatory and operational framework for the administration to perform such offsets. The provisions of the Constitution, which protect property rights, do not preclude the state from enacting laws necessary for tax collection.
Likewise, the Constitution states that everyone is obliged to contribute to public burdens according to their means, and in this specific case, it is not of a prohibitive nature, since it is not used for purposes of restricting the exercise of a certain profession or the performance of a certain job.
The court found that the offset applied for the recovery of income tax debt, did not violate the polyclinic’s property rights or its right to work or economic freedom.