Stats and facts about the tax administration’s 2016 activities
The Czech financial administration has recently released a report on its activities for 2016. It states that tax revenues grew by nearly ten percent year-on-year, thanks to the tax administrators’ increased activities in the inspection area. At the same time, the number of appeals against the tax authorities’ decisions increased and international cooperation among tax authorities intensified.
The financial administration has long been proclaiming that it will take a less formal approach to taxpayers. At the same time, it holds that fighting tax evasion will remain its priority. Perhaps this is the reason why VAT is in many ways number one among taxes: the highest number of inspections (approximately 8 000) and procedures to remove doubts, the highest amount of additionally assessed tax and the highest number of appeals filed. Of the total reported excess deductions, whose amount dropped by nearly CZK 12 billion year-on-year, tax authorities retained nearly CZK 4.7 billion in 2016. The second tax runner up, following individual income tax, was corporate income tax, where additionally assessed tax solely on the grounds of transfer pricing amounted to CZK 886 million, and reductions of tax losses to CZK 8.5 billion.
To make tax collection more efficient, the tax administration increasingly often resorted to various international information exchange and cooperation tools. Close cooperation took place in particular with Slovakia, Poland, Austria, the U.S., and Russia or Ukraine, and recently also with the British Virgin Islands.
In 2016, procedures to review tax liabilities (procedures to remove doubt and tax inspections) took longer and resulted in additionally assessed tax in approximately half of the cases. On average, the amount of additionally assessed tax per tax inspection was approximately CZK 800 thousand. In total, more than CZK 14.5 billion was additionally assessed and tax losses were reduced by nearly 10 billion. Also, tax troubles do not always end with issuing an order to pay the tax, a penalty and a late payment interest: in some cases, the tax authorities also refer the matter to the law enforcement authorities; in 2016, this was done 1 376 times.
Those who hesitate get fined. Penalties for late tax assertions soared to an impressive CZK 372 million. The state budget also received more than CZK 88 million in penalties for the failure to file VAT ledger statements.
The opinions of the Appellate Financial Directorate (AFD) and of the tax authorities have become more closely aligned: last year, the AFD granted only less than one third of appeals. The number of appeals relating to tax on immovable property grew dynamically in 2016. Nevertheless, tax-related disputes often end up in court, where powers are more balanced. More often than not, as to the size of the disputed amount, courts side with the taxpayers rather than with the AFD; penalties for breaches of budgetary discipline are the only exception from this trend.
Thanks to more harmonised legal regulations and closer ties between tax administrations within and outside the European Union, we may expect an increase in both the number and the duration of tax administration reviews. And although judging by the number of dismissed appeals the effort may seem futile, the courts’ decisions indicate that to persevere may be worthwhile.