The amendment to the Tax Code, which was approved by the Government of the Czech Republic at the end of August 2019, promises changes in favour of taxable persons and modernisation of the tax administration. The amendment is presented by legislators under the name of MOJE daně, but in addition to the promised online banking in taxes, the amendment to the Tax Code also contains other process changes. Despite the fact that the amendment to the Tax Code proposed by the Ministry of Finance of the Czech Republic has now been approved by the Government of the Czech Republic, it still has the entire legislative process ahead. Taking into account possible complications, it can be assumed that the amendment may be effective in mid-2020.
At the moment, we have to wait to see how the proposal will change during its legislative way and how long it will take to come into effect. The time and practice of taxable persons will show whether this is a step in the right direction and whether the launch of the technical solution is not rushed.
So what makes the planned change so revolutionary?
Tax authority online
The promised digitalisation of financial administration is a step towards modernising the system used by taxable persons. The vision of financial administration is clear: to make it easier for taxable persons to communicate with the tax administrator while reducing administrative burdens and making many other improvements. In practice, it means the introduction of a portal called MOJE daně, which is to extend the already available tax information box service. The current system allows the taxable entity to obtain selected but very limited information collected in the file and on the taxable entity’s personal tax account using the internet. The Ministry highlights the importance of the meaning of the designation MOJE daně which is composed of the words modern (MOderní) and simple (JEdnoduché) and that is what the change should be like.
In addition to information, the new portal should also offer the possibility of active and passive communication with the tax administrator, for example, the possibility to submit tax returns via online forms, which will allow a certain amount of pre-filled data of taxable persons. However, communication should also work in the opposite direction from the tax administrator to the taxable entity in terms of delivery of documents. The Ministry of Finance estimates the launch of the portal in the last quarter of 2020.
The amendment to the Tax Code contains a positive significant change for taxable persons, namely the revision of interest related to their new categorisation and its notable decrease. The Ministry of Finance expects the default interest to be reduced by 6% (from the current 14% p.a. plus the Czech National Bank’s repo rate to 8% p.a. plus the Czech National Bank’s repo rate). This change is also linked to a halving of the interest on the deferred payment.
Prepayments for VAT deduction
The change concerning excessive VAT deductions for value added tax, for which the possibility of prepayments will be newly introduced, should also be helpful. The aim of this amendment is to prevent the phenomenon of retaining the entire excess VAT deduction, even if only a small part of it is examined and disputed by the tax administrator. The amendment includes the obligation to pay the amount of the excess deduction that is not disputed, ex officio. Thus, it will not be necessary to ask the tax administrator for a prepayment for tax deduction. However, following the introduction of prepayments for tax deductions, the amendment plans to extend the deadline for refunding VAT deduction to 45 days, which may have a significant negative cash flow impact. This is an extension of 15 days compared to the current situation to help the tax administrator assess which part of the deduction is disputed.
Changes in deadlines due to electronic submission and abolition of the 5-day “tolerance” limit for filing tax returns
As part of the incentive to use the new system, the financial administration comes with an extension of the deadline for filing income tax returns by one month, in the case of filing the tax return electronically. However, a negative change for taxable persons is the interference with the established deadlines, which represents the abolition of the tolerance limit for filing the tax return, i.e. the current possibility of filing the tax return or paying the tax liability with a certain delay. Under the current rules, although the tax return is filed later (five working days are allowed for tax returns) or the tax is paid later (four working days are allowed for tax returns), the taxable person does not pay any financial penalty. Taxable persons use this tolerance limit either for subjective or objective reasons, when they were not able to file a tax return or pay their tax liability within the statutory period.
In addition to the changes outlined above, the amendment to the Tax Code contains other amendments to the relevant provisions. For example the following new rules were introduced:
- Change in the tax audit to allow the tax administrator to switch at any time from elimination of doubts to the tax audit. In the current legislation, this transition is only possible if longer evidence-taking is anticipated.
- To commence a tax audit, it will now be sufficient to deliver a notification on the commencement of a tax audit; a tax audit is currently commenced at a personal meeting.
- A substantial change for state compensation in the event of unauthorised seizure of tax arrears should be a reduction of 20 percentage points.
- In the case of fines for late filing of a tax report, the limit of the amount to be incurred should be increased. This represents an increase from CZK 200 to CZK 500.
- Introducing the possibility of applying for a personal identifier in the field of tax identification numbers for natural persons is also being proposed, which should replace the currently used birth certificate number.
- It will be possible to combine the statement on the outcome of the audit findings with the completion of the tax audit. Thus, according to the Ministry of Finance, if no additional charges are assessed, the tax audit should be completed more quickly.
- The relation of interest paid by the tax administrator to the compensation of detriment will also be explicitly regulated. The law will only allow for compensation of detriment or reasonable satisfaction for non-material detriment caused to a taxable entity by the tax administrator’s behaviour to the extent that no interest paid by the tax administrator arises. The law also explicitly stipulates that the interest paid by the tax administrator is the interest on a refundable excess payment, interest on incorrect taxation and interest on tax deduction.
- The scope of the tax audit will be expanded or narrowed during the course of the audit by the delivery of a notification on the change of scope of the tax audit. The notification received in connection with the tax audit will not contain a statement of reasons and no legal remedy may be lodged against it.
The article is part of dReport – September 2019, Tax news; Grants and investment Incentives.