2019 through the financial administration’s eyes

Every year around this time, the financial administration summarises and evaluates its key activities and presents its goals for upcoming years. In 2019, the financial administration regarded as most important the preparation and update of its methodological guidance on income tax and accounting, the update of prescribed forms, amendments to transfer pricing guidelines, the MOJE daně project, nDIS (New Tax Information System), and generally the gradual digitalisation of its activities.

According to the report, the financial administration continued in its fight against tax evasion while using tools such as proving the origin of assets. For personal income tax, it mainly focused on the examination of the accuracy of claiming tax credits and on the taxation of income from sharing economy.

Some statistical figures are also worth mentioning: overall revenues from taxes for 2019 amounted to CZK 907 billion, showing a year-on-year increase of 6.2%. The major revenue item was (yet again) VAT (CZK 431 billion), showing a 4.4% increase compared with 2018, primarily as a result of a higher effectiveness in the collection of taxes due to VAT ledger statements. Nevertheless, the collection of VAT fell behind the originally budgeted sum, which was, according to the report, primarily due to the postponement of the third and fourth wave of the electronic reporting of sales, and the lower effectiveness of tax securing orders as a result of the SAC’s decision-making practice and case law. An increase in the collection of corporate income tax is also worth mentioning.

Overall, in 2019, the financial administration carried out 10,408 tax inspections and 19,665 procedures to remove doubt, with tax inspections showing a year-on-year decrease of almost 11%, according to the report caused by the length of inspections already commenced. Total taxes additionally assessed based on tax inspections exceeded CZK 7 billion, showing a year-on-year decrease of almost 30%. The financial administration continued in its targeted inspection activities. The majority of procedures to remove doubt targeted VAT payments, accounting for a share of 64%. The most frequent discrepancies asserted during VAT inspections involved non-standard situations associated with fraud in chain transactions. For income tax, the financial administration continued in its trend of examining transfer pricing, the application of tax deductible items, and the exemption of interest income on one-crown bonds. The financial administration procedures’ link with criminal procedures continued: the financial administration delivered a total of 2,000 reports to law enforcement authorities, most often on the grounds of suspicion of committing a crime of tax evasion.

The financial administration reported a total of 12,028 appeals, of which 7,545 were resolved: more than half were dismissed at either the Appellate Financial Directorate or at the individual tax authority levels. The highest number of appeals again concerned VAT. In 2019, administrative courts subsequently reviewed a total of 828 cases, upholding taxpayers’ claims in 278 cases, overall amounting to CZK 5.7 billion. Additionally assessed tax confirmed by the courts totalled CZK 6.1 billion. When looking at the total amount of additionally-assessed tax, it becomes evident that the financial administration again erred mainly in cases where large amounts of tax were additionally assessed.

What is to be expected in years to come? The financial administration’s main goal will again be to effectively recover underpaid taxes, especially relating to tax evasion arising from sharing economy, tax reliefs, and proving the origin of assets. During the course of 2020, the financial administration plans to further develop the MOJE daně and nDIS projects and issue methodological guidance associated with an amendment to the Tax Procedure Code, while preparing for the re-implementation of the electronic reporting of sales and the launch of its third and fourth wave, planned to occur on 1 January 2021.