The SAO audited the administration of VAT concerning the import of goods from third countries
Press Release – March 26, 2012
The audit focused on VAT administration of imported goods from third countries. In this audit the SAO concentrated on the sharing of information between the customs and tax authorities, the accuracy of this information, the extent to which the shared information was put to use and the use of statutory powers in the administration of VAT. The audit also checked whether VAT payers declared the tax on the import of goods in their tax declarations.
The audit found that from 2008 to 2010 the reported tax base in tax returns for the CR as a whole was more than CZK 445 milliard lower than the total value of imports as per the single administrative documents. Yet the value of imports of goods is a key indicator of the value of the related taxable transactions and the expected tax liability.
The audit revealed that 115 out of the audited 304 VAT payers evaded the VAT in case of goods in the total value amounting over CZK 6.7 milliard during the audited period 2008–2010.
The SAO verified that exchange of information about imports of goods in the Czech Republic had been introduced, making it possible to identify taxable persons not declaring VAT in connection with imports of goods. However, this exchange of information only had a limited impact on the actual collection of VAT.
In the SAO’s opinion, making it compulsory for VAT payers to file tax returns in electronic form would make the work of the tax authorities more effective.
In case of taxable persons not declaring acquisitions preceded by the release of goods into customs procedure 42 (the mechanism used by economic entities in the EU for the purposes of exemption from VAT on imported goods) in another member state, the tax authorities did not know the extent of imports and did not actively try to find out either. Effective supervision of VAT declaration after imports of goods would be aided by the introduction of a common record of single administrative documents (equivalent to a central register) at EU level, so that the tax administrators would be able to perform on-line enquiries into the extent of a particular taxpayer’s imports in all EU member states.
The VAT administration system in the event of imports of goods and subsequent taxable transactions was not able to prevent non-declaration of VAT; in reality it merely sought to sanction ex post entities that had long gone missing. The process as a whole was protracted and foundered on the legislation that did not enable the adoption of rapid and effective measures to prevent imports of goods by fraudsters. Goods were imported into the EU market from third countries without VAT and income tax being paid on them, which distorted economic competition and significantly reduced state budget revenues.
The amendment of Act No. 235/2004 Sb., on value added tax, effective since 2005, eliminated what is known as “state subsidies of value added tax” which taxpayers paid to the customs authorities when importing goods and then charged to the state in their tax declarations. This created space for tax evasions when untaxed goods were put on the market.
The SAO made a qualified estimate that the Czech state budget revenues could be increased by more than CZK 10 milliard annually if:
- databases were interconnected and VAT declarations were automatically compared with the central register of single administrative documents;
- the quarterly tax period for taxable importers was abolished; and
- VAT was secured upon import.
The auditing operation was performed from April to November 2011. The audited period extended from 2008 to 2010; where relevant, the data from the previous period and the period until the end of the auditing operation were also scrutinized. The audited bodies were the Czech Customs Administration, the General Financial Directorate and 17 selected financial authorities. The auditing operation was included into 2011 Audit Plan of the SAO under No. 11/07. Antonín Macháček, Member of the SAO Board, managed the operation and prepared the audit conclusion as well.
Communication Department
Supreme Audit Office