Major changes to tax procedure rules ahead

The changes aim to allow for the implementation of MOJE daně, a simple and modern tax system, simplify inspection procedures and encourage electronic communication, thus reduce the administrative burden. The extent of changes is illustrated by the fact that the amendment is proposed to enter into effect no earlier than 6 months after its publishing.

A new regulation is also planned for tax information mailboxes. The ministry wants to motivate taxpayers to use electronic communication by making electronic filings more advantageous. The filing deadline for tax returns for annual taxation periods would automatically be extended by four months if filed electronically. And vice versa, electronically filed requests for a refund of tax overpayments would have to be resolved by administrators twice as fast – within 15 days, rather than the 30 days applicable for “paper” filings.

The amendment also reflects a number of recent ground-breaking court judgements. For instance, it proposes introducing prepayments for tax deductions. This would give tax administrators a tool to refund the parts of excess deductions that they have no intention to inspect. Upon initiating a tax inspection or a procedure to remove doubts, the tax administrator would have to consider whether the conditions for making such a prepayment have been met. On the other hand, the deadline for refunding excess deductions (typically of VAT) would be extended from today’s 30 days to 45 days.

The ministry also proposes simplifying the tax administrators’ inspection procedures. A personal hearing/discussion on the tax inspection report is to replace the delivery of a notice of termination of a tax inspection. Furthermore, if, after the amendment is passed, a tax administrator fails to call upon the taxpayer to file an additional tax return before initiating a tax inspection, this will not render the entire procedure unlawful; such a wrongly initiated tax inspection would retain all its effects, with the only difference that the taxpayer would not have to pay a penalty on the additionally assessed tax, if any.

Small entrepreneurs in particular will welcome the possibility of having another tax identification number assigned. They may apply for a change in their tax ID so that it no longer contains a general identifier comprising their birth certificate number, but instead a neutral number assigned by the tax administrator.

Fundamental changes are ahead for the entire system of interest charged both to taxpayers and tax administrators. The rate of late payment interest (interest on payment past due) is to be united with the civil law. The present repo +14% rate would thus decrease to repo +8%. The same interest rate is to apply to interest on incorrectly assessed tax (using the present terminology, interest on the tax administrator’s unlawful procedure). Interest on postponed payments and interest on tax deductions should be reduced by half. And there will be yet another change to late payment interest, apart from the interest rate: the basis for calculating the late payment interest would no longer be taxpayer’s total underpayment due to the tax administrator, but the tax due and unpaid or the amount due as a result of an incorrectly claimed deduction. Of the taxpayer’s personal tax account, only those overpayments used to settle the underpayment will be taken into account. In practice, this means that the interest-bearing principal amount of an underpayment will, for instance, no longer be reduced by overpayments on other taxes that have then been refunded to the taxpayer.

The Ministry of Finance also intends to abolish the benevolent five-day sanction-free period for late filings of tax returns and tax payments. Late payment interest shall start to accrue already on the original due date. A late failing by up to five working days would only remain sanction-free for taxes with a taxation period shorter than one year, typically VAT, excise duties or gambling tax. According to the ministry, the sanction-free period of five days is a non-systemic exception which is only justified for taxes with short, 25-day deadlines for filing a tax return, where taxpayers may objectively have problems gathering necessary data.

The amendment, proposed by the Ministry of Finance, contains a number of controversial points. The proposal has now been released to other ministries and is likely to undergo changes before passing.