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Have you Ever Heard of "Notification Letters" from the Finance Office?

Company: bnt attorneys-at-law s.r.o.

The finance office has newly taken to notifying customers informally of potential tax fraud by their suppliers.

In recent times, finance offices have begun to deploy on a larger scale the possibilities enshrined in Sec. 109 of the VAT Act, which stipulates a "guarantorship (for VAT duties) on the part of recipients of taxable services and supplies" In practice, this means that finance offices contact taxpayers to notify them that their supplier failed to report or pay VAT and that they might be held liable in their capacity as guarantors. Typically, this takes place during an informal phone call: an official recites the "notification letter" and then records this fact in a memo for the files. Other possibilities include service of process within the context of a notice in which the finance office calls upon tax payers to remove doubts, or notification during an oral procedure that is being put on record.

In all these cases, the taxable person learns from the finance office that discrepancies have been found in connection with the measures taken against tax evasion (i.e., specifically, what is known as carousel VAT fraud or other forms of fraud involving chaining), and is being instructed of their option to pay the amount of VAT on behalf and in lieu of their supplier directly into the account of the finance office. Taxpayers are required to do everything in their power and use all means available to them to prevent tax evasion.

Judging from the typical reactions of taxable persons (customers / recipients), receiving a notification letter from the finance office often provokes them to discontinue the business relationship with the given supplier so as to avoid trouble with the finance office – something which can have devastating consequences for the supplier. Of course, there is always the option to pay VAT directly to the finance office, but not all finance accountants are able or willing to handle the additional administrative effort associated with this.

One will have to wait until this practice becomes the subject matter of litigation in the future in order to find out whether the tax authority, in its zeal to combat tax evasion, has gone out on ice too thin.


Source: VAT Act (Act No. 235/2004 Coll., on value-added tax); Tactical steps towards the investigation of discrepancies detected during the processing of invoice-matching reports on the level of "light" analytics (known as "COMBINE HARVESTER")


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