The Financial Administration has recently published information about its activities in 2017 including statistical data concerning specifically tax administration. Based on comparison with the data of previous years, we can observe particularly a trend of increases in sanctioning taxable entities for breaches of their obligations.
The Tax Code regulates a variety of sanction instruments for breaches of obligations of a taxable entity during tax administration. Aside from sanctions for breaches of obligations of a taxable entity of non-monetary nature, a taxable entity can be subject to fines especially for the breach of obligations in the area of filing tax returns and in the area of payment.
In practice, it is no exception that due to the existence of a long-lasting tax audit and appellate proceedings, sanctions can reach almost the same amount as the additionally assessed tax liability. The strictness of the sanctions is exacerbated by the fact that they usually represent a non-tax deductible expense. After the imposition of a sanction, a taxable entity should therefore consider the use of remedies or the possibility of sanction remission, since in recent years it has been possible to obtain at least partial remission of selected sanctions.
Which fines predominate according to the Financial Administration’s statistics?
As in previous years, a very frequently imposed sanction pursuant to the Tax Code in 2017 was the fine for late filing of the tax return. This fine was imposed in a total of 273,000 cases, which is 55,000 cases more than in the previous calendar year.
- A taxable entity becomes obliged to pay the fine for late tax return if its filing of the tax return is delayed by more than five business days of the end of the period for filing the tax return.
- The fine is imposed automatically as required by law and the tax administrator has no possibility of administrative reasoning. In this respect, it should be emphasised that this sanction applies even if the taxable entity delays in filing an additional tax return or accounts and reports. The amount of the fine depends on the amount of tax and the period of default.
- The amount of this fine is set by law as equal to 0.05% of the assessed tax or the assessed tax deduction, or 0.01% of the assessed tax loss for every day following the day of default, but no more than 5%; however, the fine for late tax return simultaneously cannot exceed CZK 300,000. If the taxable entity files a tax return within 30 days of the end of the period for filing the tax return and if the taxable entity was not in default with another tax return in the same calendar year, only half of the amount of the fine is imposed. This fine cannot be remitted in any way.
If additional tax is assessed after a tax audit, an additional penalty of 20% of the assessed tax is imposed. If the additionally assessed tax is paid, up to 75% of the penalty may be remitted based on an evaluation of the taxable entity’s cooperation.
The highest item in the total volume of the recorded additional tax charges imposed for 2017 was default interest imposed in the event of late payment of tax, amounting to CZK 14 billion and it therefore represented 87.2% of the total value of additional tax charges. However, the state budget income from this sanction was higher in previous years (approx. CZK 19 billion in 2016, CZK 17 billion in 2015). A taxable entity becomes obliged to pay default interest (currently in the amount of 14.5% p.a.) for each day of default starting with the fifth business day following the original due date of the tax, until the day of actual payment.
The taxable entity does not have to be automatically informed by the tax administrator about the tax arrears in any way, even though default interest may arise from just an oversight, e.g. due to the payment of tax with an incorrect variable symbol or forgetting to make prepayments. Every taxable entity should therefore regularly make sure that it has no tax debts, which can be done by filing a request for a confirmation of no outstanding payments or confirmation of the state of the personal tax account, or a request for an extract of facts from the tax file, or online using the tax information box.
Tax that has not been paid on time represents tax arrears, but the performance of this obligation to pay the outstanding amount may still be postponed. One of the possibilities is the permission to defer the payment of tax or to distribute its payment in instalments regulated by Section 156 of the Tax Code; the deferment may be permitted even retroactively. Throughout the permitted deferment, the taxable entity is not obliged to pay default interest but instead a significantly lower interest on the deferred amount (7% plus REPO p.a.), which can even be partially remitted by the tax administrator in specific cases. In 2017, deferment was granted in 8,210 cases.
Sanctions for breaches of the taxable entity’s obligations of a non-monetary nature
A frequently imposed sanction for breaches of the taxable entity’s obligations of a non-monetary nature in 2017 were fines for filing a tax return or additional tax return in other ways than electronically even though the taxable entity was obliged to use the electronic method. Other frequent fines included fines for breaching obligations related to local sales/purchases reporting (‘kontrolní hlášení’) pursuant to the VAT Act. The highest amount of fines were imposed by tax authorities to VAT payers that did not file the local sales/purchases report even in the substitute period after a call from the tax administrator. In such a case, VAT payers should keep in mind that one transgression per year can be remitted provided that the required conditions are met. Tax authorities also imposed several fines pursuant to the Accounting Act, e.g. for the failure to disclose the required reports, which are, however, not disclosed by most companies in the Czech Republic according to the statistics. Sanctions were also imposed with respect to the electronic sales records.
The article is part of dReport – October 2018, Tax news; Grants and investment Incentives.
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