The Major Reason for Tax Uncertainty is the Frequent Changes in Tax Legislation
"Tax certainty is an important aspect for companies that are deciding about placing or expanding their investments,"
- Tomas Seidl,
Partner in Charge of the Tax and Legal function of Deloitte Czech Republic
Prague, 13 September 2012 – Pursuant to the latest Deloitte survey, more than a half of Czech companies think that the low level of tax certainty impacts or even damages their business operations. They claim that the main reason relates to the constant changes in legislation. These are the results of a Deloitte survey carried out among large companies in the EMEA region, including the Czech Republic.
We have prepared a brief extract of the most interesting conclusions of the survey entitled Tax Certainty in EMEA Countries Including the Czech Republic (click here).
After two years, Deloitte carried out another survey regarding the perception of tax certainty among taxpayers. Thanks to the close cooperation between Deloitte member firms in this region, a total of 1,328 respondents from the following 24 countries participated in the online survey in June 2012: Belgium, the Czech Republic, Denmark, Finland, France, Ireland, Iceland, Italy, Kenya, Cyprus, Luxembourg, Hungary, Nigeria, the Netherlands, Norway, Poland, Portugal, Austria, Romania, Russia, Greece, Slovakia, Sweden and Switzerland.
"Tax certainty is an important aspect for companies that are deciding about placing or expanding their investments. Therefore, our current survey is concerned with tax certainty. The result of the survey is that tax uncertainty adversely impacts every other respondent, or even damages their business operations," said Tomas Seidl, Partner in Charge of the Tax and Legal function of Deloitte Czech Republic.
This year, the survey focused on four key areas:
1 The relationship with tax authorities in general;
2 Tax audits;
3 Perceptions of tax certainty; and
4 Advanced Ruling Practice.
The Relationship with Tax Authorities
The overall result of Deloitte's survey, which was carried out across the entire EMEA region, is that companies have good relationships with their tax authorities. Nearly two thirds (65%) of respondents described their relationship as good and more than one quarter (27%) evaluated it as very good. However, more than 15% of respondents in Austria, Italy, Poland, Romania and Russia consider their relationship with the tax authorities to be bad or very bad.
At the same time, taxpayers in the EMEA region suggested that the quality of their companies' relationships with the local tax authorities depends on the particular department of the local tax authority with which they need to cooperate. This predominantly involves departments specialising in corporate income tax – more than 21% of respondents had problems with this department, followed by the VAT department, where nearly 20% of respondents reported difficulties.
Within the EMEA region, 92% of respondents consider their relationship with the tax authorities to be very good or good. "If we take a look at the results for the Czech Republic only, we will see that 96% of Czech respondents consider their relationship with the tax authorities to be very good or good," comments Radka Mašková, Director in the Tax function of Deloitte.
With regard to where the relationship with the tax authorities of respondents in the EMEA region faces most complications, the respondents answered that complications arise most often in the area of income tax and VAT. The data for the Czech Republic suggests the same. Here, respondents also identified income tax and VAT to be the most complicated areas of their relationship with the tax authorities.
In another question, respondents were asked to compare their relationship with the tax authorities in their country to their relationship with a tax authority abroad. More than one third of respondents (38%) answered that their relationship with a tax authority abroad is neither worse nor better than with the tax authority in their country, one quarter (23%) claims to have a better relationship with the tax administrator in their country, while 12% have a better relationship with tax authorities abroad.
"The proportion of answers of Czech respondents differed. Half of Czech respondents (49%) stated that they do not know, only 4% of Czech respondents have a worse relationship with their tax authorities in the Czech Republic than with the tax authorities abroad. One fifth of Czech respondents (18%) reported that they have a better relationship with the Czech tax authorities than with the foreign tax authority and the rest believe that they have the same relationship with this institution in the Czech Republic as they do abroad," adds Radka Mašková.
An interesting question was also the provision of information to the tax administrator in electronic form. Within the EMEA region, 83% of respondents answered that the tax authority enables the provision of information electronically. On the other hand, the answer to the question regarding whether the tax administrator requested the information to be provided electronically in the last two years was positive only in 61% of cases, of which only 37% of respondents stated that the tax authorities request the provision of information in electronic form regularly.
"If we take a look at the figures regarding the Czech Republic, we can say that the Czech Republic keeps up with other EMEA countries in this respect. 40% respondents in the Czech Republic stated that the tax administrator requests information in electronic form," says Radka Mašková.
The survey also focused on tax audits. Like two years ago, the respondents confirmed that most tax audits in EMEA countries are conducted with regard to VAT. However, this area is closely followed by income tax. More than half of respondents (53%) stated that the intensity of tax audits has not changed in the last year. Only one fifth (21%) believes that the tax administrators were more active.
One of the questions in the survey was also whether the respondents report open cases with the tax administrators for more than two years. "Within the EMEA region, most respondents (55%) answered that they do not have any, whereas 37% respondents confirmed that they have such cases. The outcome for the Czech tax authorities was positive, since the respondents stated that only one tenth of cases last longer than two years. The question is still whether this positive evaluation is not related to the low frequency or little consistency in the audit activities of Czech tax administrators. Unfortunately, our survey did not give us an answer to this question," said Tomas Seidl.
The EMEA respondents' answers to the question of whether companies are prepared to litigate were unanimously positive in almost one half of cases (47%), while less than one third (31%) claimed that they would probably litigate. It is generally known that there are not too many legal disputes with regard to tax in the Czech Republic. In the Czech Republic, only one quarter of respondents would definitely litigate (23%), while one half (49%) stated that they would probably litigate. The answer regarding whether the firms within the EMEA region have really been involved in a lawsuit in the last three years was negative in 74% cases. In the Czech Republic, 92% respondents answered that they were not involved in a lawsuit with the tax authorities.
"The companies thus confirmed our assumption that they are prepared to defend the correctness of applying tax even in court. However, even more interesting is the finding that actual legal disputes with the tax authorities are relatively rare," added Radka Mašková.
Perceptions of Tax Certainty
52% respondents in EMEA countries believe that the tax uncertainty in their country impacts or even damages their business operations. In the Czech Republic, 59% of respondents confirmed this opinion.
Another question that was no less interesting was the question regarding the major cause of existence of tax uncertainty. 28% of EMEA respondents stated frequent changes in tax legislation to be the major cause of tax uncertainty. This was followed by the inadequate length of tax proceedings, which were the cause in 12.4% of cases. Deficiencies and inconsistencies in the opinions of the tax administration were the third most important reason for tax uncertainty (12.1%).
Furthermore, the outcome of the survey was that only 5% of Czech taxpayers consider tax certainty in the Czech Republic to be better than in other developed countries. On the other hand, 32% of respondents believe that tax certainty in the Czech Republic is worse than in other developed countries.
Advanced Ruling Practice
Advanced rulings issued by tax administration bodies can be a useful tool in increasing tax certainty. Therefore, in the last part of the survey we were interested in determining whether the survey participants are aware of them and whether they use them in practice. Only 42% of respondents correctly answered that advanced rulings exist in the Czech Republic, 12% stated that they do not exist and 44% of respondents answered that they do not know.
According to the answers in our survey, only 6% of respondents have already asked the tax administration for an advanced ruling, while 67% have not yet used this opportunity.
"It is interesting how ill-informed the Czech professional public is about the institute of the advanced rulings. Consequently, advanced ruling practice is used relatively scarcely by companies," commented Petr Neuschl, Manager in the Indirect Tax department.
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© 2012 Deloitte Czech Republic