2018 through the eyes of the Ministry of Finance
What was the last tax year like according to financial administration officials? The published statistics show interesting figures and facts: In 2018, the financial administration completed, among other things, 32 577 tax inspections and procedures to remove doubt, while 21 065 of them resulted in an additionally-assessed tax or a tax loss reduction.
Every year around this time, the Ministry of Finance publishes its Report on the Activities of the Czech Republic’s Financial and Customs Administration. The ministry’s evaluation of 2018 is positive. According to the report, it managed to fulfil its set goals to improve the collection of taxes, implement measures against the high outflow of revenues from direct foreign investments and tax evasion, and adopt an amendment to the Act on the Electronic Reporting of Sales. A public opinion survey conducted on behalf of the financial administration also shows that the majority of respondents views the financial administration as an institution that is trustworthy and open to the public.
According to the report, the financial administration continued in its fight with tax evasion and fraud, focusing mainly on excess VAT deductions, one-crown bonds and the shared economy (Airbnb or Uber platforms) while using existing tools such as VAT ledger statements and the reporting of sales but also new information on the identification of persons providing accommodation via internet platforms, acquired based on a signed memorandum. In legislative and international cooperation matters, 2018 was a busy year for the financial administration, as it managed to implement the EU Anti-Tax Avoidance Directive (ATAD) into the Czech legal order and pass an amendment to the Electronic Reporting of Sales Act, and put into use an international data collection system, i.e. country-by-country reporting.
Some statistical figures are also worth mentioning. Overall revenues from taxes and custom duties for 2018 amounted to CZK 1 038 billion, showing a year-on-year increase of 6.6%. The major revenue item was (yet again) VAT (CZK 413 billion), showing an 8.3% increase compared with 2017, primarily as a result of an increase in the value of tax liabilities contrary to a lower increase in claimed deductions. According to the ministry’s statistics, the year-on-year increase in the collection of VAT primarily owes to VAT ledger statements. However, as a result of the failure to implement Phases 3 and 4 of the electronic reporting of sales, the state did not collect as much as it had planned in its prognoses. The collection of corporate income tax increased, compared with the prior period. The ministry believes that this was primarily owing to positive economic developments.
The financial administration continues in its targeted inspection activities. In 2018, it mainly focused on transfer pricing, assessing additional tax of CZK 1.2 billion and reducing tax losses by more than CZK 12 billion in this area. It identified major deficiencies, such as incorrectly set pricing considering a company’s functional and risk profile, the tax deductibility and price of intra-company services, intra-company financing, and payments for intangible assets. The major deficiencies in corporate income tax identified by the financial administration related to market surveys and advertising; for VAT, it mainly concerned agency employment and advertising services. Overall, in 2018, the financial administration carried out 12 358 tax inspections and 20 219 procedures to remove doubt, while assessing additional tax of more than CZK 15 billion and reducing tax losses by almost CZK 38 billion.
The financial administration reported a total of 15 722 appeal proceedings pending, an increase of over 16% compared to last year. The highest number of appeals related to VAT. In 2018, the financial administration dealt with a total of 6 370 filed appeals, of which more than half (3 447) were dismissed and 2 344 partially granted. Almost 1 000 cases ended up before court. Administrative courts dealing with tax issues upheld taxpayers’ claims in 291 of 1 011 actions handled in 2018. When looking at the total amount of additionally-assessed tax, it is evident that the financial administration erred mainly in cases where large amounts of tax were additionally-assessed – 291 decisions reversed by the court account for additionally-assessed taxes of CZK 3.2 billion, whereas CZK 3.4 billion relate to 571 decisions confirmed by the court.
What is to be expected this year? The financial administration is planning to continue with its MOJE daně project and launch the APED application for electronic auctions. During tax inspections, officials will focus on the examination of the accuracy of information in personal income tax returns, following the data reported in electronic sales reports, tax fraud in the area of online shopping, and the review of income from sharing economy.