New Scheme of Tax Administration Territorial Jurisdiction

13. 10. 2016

Your company’s seat is in Prague, but its business activities are inspected by authorities from Brno, České Budějovice or Pilsen? Starting in July, it is possible…

On 29 July, 2016, an amendment of the Czech Republic Financial Administration Act, which among others introduces a change concerning the territorial jurisdiction of tax subjects during tax inspection, became effective. As we have already informed you in our one of our previous articles which focuses on the topic of territorial jurisdiction, the Tax Regulation (in Czech: DAŇOVÝ ŘÁD) stipulates the territorial jurisdiction being dependent on the seat of a legal entity (usually identical with the address under the firm is entered into the Commercial Registry) or the address of the permanent residence of a physical person (if the domicile is impossible to establish it is the locality where the person in question mostly abides). On the other hand, the VAT Act understands the territorial jurisdiction being dependent on the real seat of the legal entity.

The aforementioned amendment removes the limits of the territorial jurisdiction for tax authorities performing inspections - put simply by way of example, a company seated in Prague may be inspected by any all tax authority office. The main reason for such a change is the attempt to centralise the inspection procedures regarding VAT of all the links of the business chain with one tax office (ie the one performing the inspection). So as to avoid any 'collisions' of several tax offices overlapping in their activities, the priority principle applies - the proceedings are to be conducted by the office that has commenced them. It ought to be noted, however, that regular tax administration and tax assessment do not come under the broadened competences of inspecting authorities - after the proceedings all the amassed data are to be forwarded to the local tax administrator.

As stated above, the amendment focuses primarily on the VAT and, specifically, missing trader (carousel) frauds and, since collection of VAT is closely connected with the customs administration, the scheme of transferring of the territorial jurisdiction, alongside other changes, has become effective on the same date as the Czech Customs Administration Act amendment. What is more, his tax inspection procedure can be made use of when reviewing and supervising other taxes, too: the corporate income and withholding taxes, for instance.

Since tax evasions are, without a shadow of a doubt, still a hot topic of discussions among both general public and professionals, the means of struggle against them need to be made more efficient and reliable - the obligation to submit a control report along with a VAT Return was introduced in January and the first stage of the long-awaited electronic records of sales is to start at the beginning of December for certain tax subjects. Only time will tell us, then, how efficient these strategies imported from abroad and adopted in the Czech environment will be.

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