print ]Survey: Tax certainty decreased primarily as a result of quick changes to legislation
“Tax certainty is usually a key decision-making principle for companies. Specifically, companies that are interested in making new investments in the Czech Republic often ask what they, as taxpayers, can expect from the local tax administration,” says Tomas Seidl, Partner-in-Charge of the Tax and Legal function of Deloitte Czech Republic.
The survey indicates that more than 60% of the companies consider tax certainty in the Czech Republic to be lower than in other industrialised countries, such as Germany or the United Kingdom. 40% of the respondents named frequent changes to legislation as the major cause of tax uncertainty, while 24% of the companies referred to weaknesses and reversals in the tax authorities’ doctrine or publicly-available guidance as being their major cause of concern. Other causes of tax uncertainty included the possibility of legislative changes to take retrospective effect (named by 14% of the respondents) and the excessive length of tax disputes (10%).
“Tax law’s dynamics differ from the dynamics in other legal fields. Ordinary taxpayers see all these changes, big and small, as an increasingly complicated labyrinth of rules. Quite frankly, I don’t think this will ever improve as tax rules reflect the increasingly complex organisation of our society,” noted John Ploem, Partner of the Tax and Legal function at Deloitte.
40% of the companies indicated the stability of legal rules and regulations as being a means of improving tax certainty. 27% of the addressed firms believe making an obligation requiring the tax authorities to answer, in a short timeframe, a clarification request made by a taxpayer who wants to make sure he is adhering to the law before committing to a given transaction will be useful. 11% of the companies would welcome advance consultation with businesses on any proposed changes to legal rules and regulations, and the same proportion (11%) spoke favourably about the continual updating of the tax authorities’ written doctrine.
“Having a much broader advance tax ruling would be very beneficial. Obviously, the Czech Republic has progressed a great deal, but there is still some way to go. But to be fair, while the Czech tax legislation may lack a broader advance ruling system, when it is compared with other jurisdictions in Central Europe the law and accompanying decrees are rather concise,” emphasised Jaroslav Škvrna, Deloitte’s Tax Partner Leader in Central Europe.
“In my experience, greater and more structured consultation with taxpayers would greatly enhance tax certainty in the Czech Republic. Generally, certainty leads to a more efficient cost of collecting tax and a lower cost of compliance for the taxpayer,” said Peter Wright, Partner of the Tax and Legal function at Deloitte.
The survey also highlighted that the vast majority of companies had experienced tax audits or detailed tax inquiries. The procedures and behaviour of tax administrators during the tax audits were generally seen as trouble-free and transparent. By contrast, 45% of the respondents were not satisfied with the time frame of tax audit procedures. The most problematic area in the relationship with the tax authority involves value added tax.
Most respondents expressed the opinion that the quality of the relationship between their organisation and the tax authority depends on a particular person or at least a department of the tax authority. Only 9% of the respondents had a different opinion. Half of the companies repeatedly experienced a situation where various departments of the tax authority had different opinions on a tax matter. While 71% of the respondents indicated their willingness to undergo court proceedings with the tax authority in the event of a dispute, only 22% have already undergone court proceedings regarding tax matters.
“Certainly, there is no country in which the taxpayers could benefit from full tax certainty; such a system would place immense financial and administrative requirements. However, we hope that the new government will make at least some of the required decisions and steps leading to improving tax certainty in the Czech Republic,” concluded Radka Mašková, Director of the Tax and Legal function at Deloitte.
