We already informed you about the new statutory obligation to file tax returns electronically, where the taxpayers or their representatives have a live data box, and the obligation to have financial statements audited electronically. We also alerted you to potential ambiguities. In addition, in particular those who keep accounting records face another problem – what to do with financial statements.
If you enclose them as a PDF file or hardcopy, you are bound to receive a phone call or a request from your tax administrator. This is because tax authorities have been instructed to do so. According to the notification of the General Financial Directorate of 16 March 2015, if the format and structure are not complied with (e.g. because schedules are enclosed as PDF), the filing is defective and the taxpayer will be called upon to remedy the defects under Section 74 of the Tax Code. The General Financial Directorate is of the opinion that a schedule is part of the filing and subject to the same rules as the filing itself. This also applies to the form of the filing. If a specific format and structure are prescribed and published for cases where the tax return is submitted electronically, the restrictions also apply to the schedules.
Tax return instructions provide that “where the tax return is filed electronically, financial statements of entities that are not required to present their financial statements using international accounting standards are deemed to mean the ‘Selected data from the balance sheet‘ and ‘Selected data from the P&L account’ electronic schedules and, where applicable, ‘Selected data from the changes in equity report’, filled in using the data from the balance sheet and the P&L account or the Changes in equity report and a copy of the notes to the financial statements, inserted as a separate file in .doc, .xls, .pdf, .jpg, .txt or .rtf format using the e-Attachment”.
In practice, this means that this year, data from the financial statements for 2014 must be imported or, more precisely, in a majority of cases manually typed in tax returns in the XML format via the Electronic Filings for Financial Administration application (EPO). In the balance sheet the data must be presented in “Gross”, “Correction”, “Net” columns and must be supplied with last year’s data, which are must be available to the tax authority from the previous return (where is the principle of reasonableness?). In addition, you must state the person who signed the financial statements and incorporate, in the XML file containing the return, a copy of the financial statements (in any format). This single large XML file must be filed electronically with the tax administrator.
As a result, tax authorities completely ignore whether the financial statements have been approved by the company’s authorised body and that the tax return is prepared by a tax adviser who usually has no authorisation to compile financial statements and has no liability for the statements. The General Financial Directorate gives no information about financial statements approvals; it only states that the tax portal does not allow filing tax returns “in parts”, such as a separate part prepared by the tax adviser and part prepared by the company itself.
This new administrative burden placed on taxpayers has met with opposition from the Chamber of Tax Advisers of the Czech Republic. In its letter to the General Financial Directorate of 17 March 2015, the Chamber proposed that the tax administration should allow filing a copy of financial statements in any format (or PDF) as a separate attachment to the electronic filings or the tax administration should prepare a separate form in .xml formant for filing large attachments (particularly selected financial performance data or enclosures regarding transfer pricing) which could be filed independently of the tax return.
Nevertheless, the General Financial Directorate insists on the requirements, even though requiring financial statements in electronic form is not in full compliance with the law. This is because rights and obligations may not be imposed other than by the law or a statutory instrument, or individual legal acts.
If you have not filed your corporate income tax return yet, you might want to consider whether you want to follow the new procedure required by the tax authorities this year. If you want to follow the statutory procedure or if you are now wondering what to do with a request to remedy a defective filing, please do not hesitate to contact us.