Tax Code amendment enters into force on 1 January 2021. Below, we provide an overview of the major changes that this amendment introduces.
Changes in tax return filing deadlines
In order to further support the digital filing of tax returns, the general 3-month period to file tax returns shall be extended to 4 months in cases where the tax return is filed digitally.
Another important change in this domain compared to the current practice is that for an extension of the filing deadline to 6 months to be processed, a power of attorney will no longer be required to be filed by the end of the standard 3 month deadline. Newly, it will suffice for the tax return not to be filed within the standard 3 month period, but filed subsequently by a tax adviser. Disputes over whether a power of attorney was submitted on time with a relevant tax administrator or not will thus be history.
If the taxpayer does not manage to file a tax return within the standard 3 month period, the above measure will thus practically offer two alternatives as to how to avoid penalties for late filing of the tax return and tax payment. The deadline for filing a tax return will be reviewed by the tax administrator retroactively, depending on when and how the tax return was eventually filed.
Based on the transitional provisions, it will be possible to already use the new measure for filing tax returns for the 2020 tax period.
As a concluding remark, please note that the new regime of extending the tax return filing deadline only concerns the standard 3 month filing deadline, not special deadlines (e.g. in case of death, winding down of business with or without liquidation proceedings, or in case of insolvency) or deadlines determined by laws other than the Tax Code (e.g. Article 38m of Income Taxes Act).
Promotion of digital tax administration
The main goal of the Tax Code amendment has been to promote digital tax administration and simplification of communication with the tax inspector. For this purpose, and using the My Taxes („Moje Daně“) initiative, the Tax Code extends functionality of the tax data box. Tax data box will for example enable that various (pre-filled) digital filings be made using information that the tax administrator already knows about the taxpayer. The taxpayer will also be able to log in the tax data box using a digital ID.
Changes in terms of sanctions
Interest rate for late payment due by the taxpayer, as well as interest rate due by tax authorities (i.e. from a refund or an incorrectly assessed tax) will newly be reduced. Late payment interest rate will henceforth be determined pursuant to the Civil Code i.e. it will amount to 8% + REPO rate of the Czech National Bank valid on the first day of each six months when the payment has been late. The same rate will newly also apply to interest payable by the tax authorities. Until now the interest rate amounted to 14% + REPO rate for the taxpayer as well as for the tax authorities.
Similarly, interest from funds withheld, which is tied to the amount of late payment interest, will be lowered as well. Interest from funds withheld corresponds to 50% of the late payment interest rate i.e. as of the new year, it will be reduced from the current 7% + REPO rate to 4% + REPO rate.
Grace period when paying late will newly be reduced from the current 4 working days to 3 calendar days. Newly, the interest from late payment will thus be calculated from the 4th day following the original payment date.
Grace period for the sanction relating to the late filing of a tax return remains the same i.e. 5 working days. However, please note that the grace period does not apply to the late filing of a Control Statement.
Interest from an excess VAT deduction unlawfully withheld by the tax authorities for more than 4 months shall newly increase. Currently, the interest rate amounts to 2% + REPO rate. Newly the interest rate shall amount to 50% of the late payment interest rate (i.e. 4% + REPO rate).
Implementation of excess input VAT deduction advance
Another positive development brought by the Tax Code amendment is the implementation of the concept of the so-called excess VAT deduction advance. This concept will enable an earlier refund of the non-disputed part of the excess input VAT deduction. Until now the tax administrator could withhold payment of the entire excess input VAT deduction for months, even if only a tiny part of it was being subject to their audit. This will improve cash flow and the overall entrepreneurial and legal certainty for VAT payers who are subject to an audit in respect of only a small part of their overall excess input VAT deduction.
The tax authority will review the excess input VAT deduction during a tax audit or when initiating proceedings to remove doubt. For an entitlement to an excess input VAT deduction advance to arise, the non-disputed part of the excess input VAT deduction shall amount to at least CZK 50,000.
If the tax authorities assess that conditions for an excess input VAT deduction advance to arise have been fulfilled, they shall credit the advance to the taxpayer’s tax account and notify the taxpayer accordingly. If a refund arises to the taxpayer as a result, the tax authority shall return it within 15 days.
The advance will subsequently set off by the tax authority against the overall tax payable. If it turns out that the advance paid out is higher than the overall entitlement, the taxpayer will be required to settle the difference within 15 days of the legal effect of the (additional) payment notice, and pay the relating late payment interest as well.
Change in audit proceedings
Until now the commencement and termination of a tax audit was made on the basis of a physical meeting between the tax administrator and the taxpayer. Newly, it will be possible to initiate as well as terminate a tax audit by post. The tax audit will be considered as having been initiated when a notification on its commencement and scope has been duly delivered to the taxpayer. The notification can be delivered during the physical meeting or by post. Similarly, a tax audit can be terminated by delivering to the taxpayer the respective notification, which will also include a report on the tax audit signed by the relevant official. The entire tax audit can thus be carried out by post only, which can significantly impair the legal certainty on the part of the taxpayer. However, the explanatory report states that the goal of this new regulation is not to make the situation worse for a taxpayer, but to enable the tax administrator to choose a procedure that is the most economical and relevant for both parties in the given circumstances.