Joint auditing operation: Administration of Value Added Tax
Press Release – May 14, 2010
From May 2009 to February 2010, auditors from the Supreme Audit Office of the Czech Republic (SAO) and the Federal Court of Auditors – Bundesrechnungshof (BRH) conducted an audit operation that focused on administration of the value added tax (VAT). The audit objective was to review the procedure used by financial authorities in administrating VAT and the procedure used to address selected cases of business transactions between the Czech Republic and Federal Republic of Germany and to review the procedures used by the tax administrations of the two countries as part of international cooperation.
The audit period covered the years 2006–2008 including relevant information dating from the time preceding the audit up to the time of audit conclusion. Among the audited bodies in the Czech Republic were Ministry of Finance and tax offices in Brno II, Brno III, Brno IV, Břeclav, Domažlice, Hodonín, Hradec Králové, Cheb, Jablonec nad Nisou, Karlovy Vary, Kralupy nad Vltavou, Kraslice, Ostrava I, Ostrava III, Písek, Plzeň, Praha 1, Praha 4, Praha 8, Rakovník, Sokolov, Tábor, Vysoké Mýto, Zlín, and Žamberk.
“The second parallel audit found improvements in the administration of VAT applied with transactions of goods from other EU member states. However, in four intra-Community transaction cases the tax authorities failed to reveal discrepancies in values of the acquired goods, which were declared in the VAT returns and in the recapitulative statements. The total value of the goods reached over CZK 107 million“, said president of the SAO František Dohnal.
Several data in the Value Added Tax Information Exchange System (VIES) were found inaccurate, obsolete, or were omitted. In 11 cases, tax offices failed to ensure appropriate updating of the data in the recapitulative statements that were related to transfers worth almost CZK 30 million. While co-operating with the BRH, auditors detected tree cases of inaccurate data on acquisition of goods in the German recapitulative statements, which were not corrected in keeping with VAT audits. Consequently, some VIES data on intra-Community acquisitions of goods have not been updated.
During the auditing period, the Act on VAT was amended to reflect recommendations from the previous auditing operation. For example, the time limit for submission of recapitulative statements of intra-Community transactions was reduced to one month and rules for cancelling the VAT payer registration in the Czech Republic were adjusted. The SAO also recommended amending the provisions to introduce an obligation for the tax administrators to cancel the registration for a VAT payer in the event of a repeated failure to submit a VAT return, but the Ministry of Finance has not drafted such amendment yet.
“Auditors stated that tax administrators have limited possibilities for inspecting high-risk transactions, concerning in particular the missing traders; while a physical review of the documents alone can hardly serve to prove any fraudulent activity to the tax entity. The same applies to tax administrators, when import from and export to third countries are additionally combined with intra-Community carousel trading. In these cases, it would be recommendable to provide for increased mutual cooperation between the customs and tax authorities aimed at identifying goods and irregularities with transportation documents as well as monitoring their physical movements within the EU in direction to the final consumer”, said Dohnal.
Concerning received requests for recovery, the Ministry of Finance submitted the requests for recovery of claims to the competent tax administrators with delay in particular in 2006 and 2007. For example, in four cases the Ministry notified the competent tax authorities 14–20 months after receiving the requests. In 2008, the Ministry submitted the requests without such delays. The outcomes of the recovery process were influenced by the fact that some of the tax entities could not be contacted or did not possess resources so that the claims could be recovered.
Large tax entities were scrutinized by respective local financial administrations as well as by the specialised audit departments of 13 selected tax offices. Such a state troubles the administration of VAT tremendously. That is why the Ministry of Finance submitted an amendment to the law of local financial authorities that suggested establishing a specialized financial office with state-wide jurisdiction that would focus on several tax entities, including tax entities with annual sales reaching over CZK 2 milliard.
The auditing operation was included into 2009 Audit Plan of the SAO under No. 09/11. Jiří Kalivoda, Member of the SAO Board, controlled the operation and prepared the audit report as well.
Bc. Radka Burketová
Supreme Audit Office