Not only (one-crown) bonds under the financial administration’s scrutiny

Tax reviews of one-crown bond issuers recently initiated by the financial administration are carried out on a coordinated basis along a common pattern. It is therefore obvious that the financial administration has prepared a methodology to be applied by the tax authorities without exception. Reviews are usually commenced as on-site investigations that, often before their completion, quickly turn into standard tax inspections. The practical relevance of such investigations is therefore not entirely clear. It is, however, clear that information obtained from an on-site investigation may be used by the tax administration in a subsequent tax inspection and also in other proceedings, i.e. during tax inspections of other entities. 

Generally, the tax administration’s procedures not only focus on the method of applying withholding tax on issued one-crown bonds or on the potential application of the abuse of right concept (where the tax inspectors aim to prove that no economic substance for the issue of such bonds existed), but also examine other aspects, such as the amount of an interest rate in relation to the arm’s length principle provisions or the need for additional financing at the time of issue in relation to general provisions on the tax deductibility of expenses. The areas subject to investigation as well as specific questions usually coincide for most entities under review. 

It should also be pointed out that inspections do not usually only focus on the examination of conditions pertaining to the issue of one-crown bonds but also on conditions of additional financing (including credit financing both from related parties and third persons) and potentially also on conditions of other bond programmes. It is therefore possible that the financial administration will also use their findings in its inspections of other entities.