Several days ago, we submitted control reports for our clients for a second time, and we are convinced that it is time to share our first experiences with the public. It is because these experiences differ widely from what the Finance ministry had promised in the explanatory memorandum for the amendment of the VAT act, which established control reports.

The ministry then claims that it expects time costs for the preparation of one report to reach 3.24 hours with an average remuneration of CZK 197 per hour. And this in a situation, when the tax payer uses the official EPO Internet portal, which is managed by the Financial Administration of the Czech Republic. In reality, though, the preparation of one report takes up to several days and may cost up to tens of thousands of korunas. This is because we know no accounting, tax or consulting services that offer their services for CZK 197 per hour. If these were internal costs for employees of companies, wages of 197 per hour that should include all obligatory levies including a possible allocation of overheads for the employee could hardly be defended. 

Let us analyse this in greater detail, though. The control report in the application on the tax portal contains 13 separate pages, and the tax payer is obliged to always fill in a minimum of three pages. If the tax subject carried out or accepted taxable transactions with a place of performance in the Czech Republic, where these fulfilments are above CZK 10,000, the tax payer is obliged to state a number of complementary data for each such transaction (in some cases it is not necessary to itemise fulfilment above CZK 10,000. Definition of these fulfilments is not the object of this article, though). According to our experiences, a complete preparation of a control report directly through the EPO system for a tax payer with a monthly turnover of approximately half a million korunas may take up to several days, where any minor manual mistake may cause summons from the tax administrator.

For the above-mentioned reasons, our company, same as a number of other payers, has been “forced” to prepare and update accounting software, so that it would be able to general a control report automatically, and thus ideally based on data from the accounting. For many tax payers, though, this update means unduly high one-time expenditure. In these cases, a decision problem has thus arisen for a number of companies. To prepare a control report manually using the EPO system every month, or to invest in the development or updating of the accounting software for automatic generation of control reports? 

Note: If you are dealing with similar worries in these days regarding the preparation of a control report, we will be glad to provide our services to you. As part of these services, we will send you an Excel file predefined by us, with the help of which we will be able to general a control report for you automatically in the required xml form. 

Another problem arises, when, based on the stipulation of article 101g of the VAT Act, the tax administrator, in case of doubts regarding the correctness or completeness of the data in the control report, asks the tax payer to change or complement the data, or confirm the original data. The tax administrator delivers this summons electronically. In these situations, the tax payer is obliged to respond within 5 days (as of this day, it is still within 5 calendar days) from the announcement of the summons to submit an additional control report, where he will change, complement or confirm the original data. Failure to comply with this duty within the law-prescribed period of five days means considerable sanctions reaching tens of thousands of korunas. 

Here it is suitable to note that the summons based on article 101g of the VAT act must not be confused with the procedure for removing doubts based on the Tax Code. The procedure for removing doubts requires that the tax administrator should duly begin this action, write a protocol or official record, and last but not least close this action. The summons according to the VAT act, on the other hand, does not presume such action on the part of the tax administrator. 

Based on the above-mentioned comparison and the explanatory memorandum, it is possible to deduce that the summons according to the VAT act only expects a simple and fast operation, with which the tax payer will only change, complement or confirm the data claimed by him in the control report, rather than lengthily proving the data he stated in the control report.  

Our experience in practice is different, though, again. Till this day, only 3 such summons have been delivered to us. This is because the tax administrator chose a different approach – contact by telephone. In the case of many our clients, it has happened to us that the tax administrator called us, demanding the sending of contracts, orders and other documents for a selected business transaction. 

What is the reason of this new “administrative practice”? Perhaps the tax administrator does not wants to cause himself extra worries with writing official summons according to the VAT act. Perhaps the tax administrator does not want to cause himself even greater administrative worries with beginning the procedure for removing doubts according to the tax code, in order to be able to request additional supporting documents. Perhaps the tax administrator has the commendable intention, on the other hand, to reduce the administrative burden on the side of the tax payer. 

Whether one or the other is true, it can, at this point, only be noted that a new “practice” of tax administrators, which we are all part of, is being established. If you encounter a similar approach on the side of the tax administrator, too, it is only to be recommended that you should tell the tax administrator that you are not authorised to provide such information over the telephone to an unknown person, or to even send this, often confidential information, by email. If the tax administrator insists on this information being provided, let him do so in the official way, in writing, in the way presumed by the law. In this way, you will protect not only your personal interests and the interests of your employees, but you will also reduce the possible risk of thus provided data being misused. Data sent on the basis of an official request should always be traceable, including a written explanation of what these data were used for. The same cannot be said about data, which were provided only on the basis of a telephone call.

We are still living in a democratic country, where the rights of the citizens of this country are defined by the Constitution and the Charter of Fundamental Rights and Freedoms, and it is not possible for the executive power in this country to work on the edge of these laws or even beyond it. 

If you are currently dealing with a similar problem, do not hesitate to turn to us. We would like to help would with the representation of your company.