In 2019 and 2020, two European directives, ATAD* and DAC6**, were introduced into the Czech legal system to prevent corporate tax evasion. The SAO examined whether the introduction of these directives into Czech law has reduced corporate income tax evasion and made the administration of corporate income tax more efficient.
The audit showed that the preventive or dissuasive impact of the introduced measures on tax revenues cannot be quantified and the amount of the impact of the new ATAD measures in relation to tax evasion cannot be quantified due to the lack of supporting data. According to the SAO's findings, the introduction of the directives did not have a significant impact on the efficiency of the administration of the tax. The implementation of both directives cost a total of EUR 36.7 million by the end of 2022. The total cost of the directives amounted to CZK 36 million. This included salary expenses and expenses for the adaptation of information systems.
Revenue from corporate income tax - the collection of which amounted to CZK 953.4 billion between 2018 and 2022 - is the fourth most important revenue of the state budget. The auditors found that, in the absence of data sources, the Ministry of Finance did not have information on the effectiveness and efficiency of the rules introduced by ATAD and did not know whether its impact was as expected.
According to the SAO, the implementation of the DAC6 Directive has strengthened the international exchange of information, but the usability of this information in the Czech Republic has been minimal. Based on a review of information from 927 DAC6 notifications, the Czech Financial Administration (FSA) did not assess any risks with an impact on tax revenues.
The General Financial Directorate (GFD) has not set up a procedure for the transfer of information from DAC6 notifications to the locally competent tax authorities so that tax authorities have all the information available, e.g. for use in risk analyses and subsequent audits. The processing of the information from the DAC6 notifications was in most cases carried out manually by the GFD. The SAO therefore assessed the computerisation of corporate income tax administration in the area of DAC6 notifications as insufficient.
By the time the audit was completed, the GFD had not fulfilled one of the strategic objectives of the development of the FS of the Czech Republic regarding a fully electronic file. By the time the audit was completed, the Automated Tax Information System had not been replaced with a new information system that would allow, for example, the conversion of a document in paper form into an electronic form with the legal effects of the original. The SAO found that the GFD spent EUR 6.8 million in the audited period. The GDF spent CZK 6.6 million on salary expenses for employees who were involved in the transfer of paper-based file documentation.
The method of transferring file documentation from individual tax offices to the Appellate Financial Directorate did not meet the requirements of computerisation of tax administration. For example, the auditors found that in 2022, 87 % of files related to corporate income tax were transferred to the Appellate Financial Directorate in paper form, although these files were maintained entirely electronically.
The GFD did not provide the European Commission with the mandatory information on administrative costs incurred in connection with the automatic exchange of information for the year 2023, in violation of the Act on International Cooperation in Tax Administration.
The SAO did not take into account the years 2020 and 2021 in its audit of corporate income tax administration, given that all performance indicators in these years were affected by events related to the covid-19 pandemic.
* ATAD - Council Directive (EU) 2016/1164 was introduced into national corporate tax legislation from April 2019. The purpose of the Directive was to prevent tax evasion.
** DAC6 - Council Directive (EU) 2018/822 was introduced into Czech tax law in August 2020, with the aim of increasing transparency and improving access to information. The Directive has introduced an obligation to report cross-border arrangements that result in, among other things, obtaining a tax advantage (shifting the tax base to other countries to ensure that certain items of income are not taxed anywhere or taking advantage of differences in tax rates).
SAO/ gnews - RoZ
ILLUSTRATIVE PHOTO - pixabay
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