Administration of the Value Added Tax
Objective of audit:
(CZ) The objective of the audit in the Czech Republic was to review the procedure used by financial authorities in administrating value added tax following integration of the Czech Republic into the common internal market of the European Community (hereinafter “EC”), connected with free movement of goods and services, and to review the use of the VIES1, particularly monitoring the exercise of the right to exempt intra-Community deliveries from value added tax.
(D) The objective of the audit was to review the system of intra-Community VAT control with a special focus on administrative cooperation in the field of VAT according to the above mentioned regulations. As a result of this, weaknesses should be reported and recommendations be developed to address the problems stated.
The audits were performed by the Supreme Audit Office, Czech Republic (hereinafter the “SAO”) and by the German Bundesrechnungshof (hereinafter “BRH”) in mutual cooperation on the basis of an agreement concluded between the two audit institutions on June 8, 2006. The cooperation primarily concerned the review of selected commercial transactions between taxpayers from the Czech Republic (hereinafter “CR”) and from the Federal Republic of Germany (hereinafter “Germany”), use of information obtained via international cooperation between tax administrations and comparison of the VAT administration systems in the two countries.
Based on an agreement between the two SAI the parallel audit on the administration of VAT in the CR and Germany was carried out. Besides the main point – exchange of information based on the Council Regulation (EC) No 1798/2003 and the Commission Regulation (EC) No 1925/2004 – the audit covered other topics as for instance the registration of taxpayers, VAT returns and recapitulative statements that are closely linked with it. Additionally, the legal situation in terms of international bus transportation of passengers and the comparison of certain statistical data were part of the audit.
By comparing the systems of administration of VAT in the two countries differences were found in the following areas:
- Registration for VAT
- International bus transportation of passengers
- VAT returns
- Recapitulative statements
- International exchange of information in the area of VAT
- Risk management
As part of cooperation, the two SAI reviewed selected cases of intra-Community transactions processed by tax entities in theCR and Germany. Thirty-one cases of business transactions were reviewed jointly using the legal provisions of the CLO, where there were doubts about their realization, their proper treatment or suspicion of VAT fraud. The SAI found that:
- In some cases, tax offi ces made use of the information obtained via international exchange and have reassessed taxpayer’s VAT liability. In those cases, taxpayers either unlawfully applied the right for exemption of supplies from VAT, or did not declare acquisition of goods in their VAT return.
- In some cases, tax offices could not make use of the information obtained, because the information was incomplete or incomprehensible. In other cases, the information could not be used because of differing legal provisions in both Member States.
- In some cases, the tax administration of another Member State refused to reply to a request for information.
- Some cases were detected, where taxpayers wrongly declared business transactions in their recapitulative statements. As a result of this, data in VIES were erroneous and therefore the tax administrators had to review those cases.