Czech tax system too complicated - foreign investors request its simplification and stability

Inefficient, hard to understand and difficult to apply. This is how German, Austrian and Swiss investors view the Czech system.
These are the results of a survey of subsidiaries of German, Austrian and Swiss companies conducted in June 2010 by VorlíčkováLeitner in cooperation with the Czech Ministry of Finance, the Czech-German Chamber of Industry and Commerce (ČNOPK), the Austrian Chamber of Commerce (WKO) and the Chamber of Commerce Switzerland – Czech Republic (HST).

What do businesspeople expect from the new Czech cabinet? What measures could permanently improve the general tax environment?

Investors are not mainly interested in further reductions to tax rates; they would much prefer a comprehensive and predictable tax policy. In this regard, companies are placing their hopes on the new cabinet, which undertook to do this in the coalition agreement.

Those surveyed expect politicians to restrict the amount of changes to laws and official procedures, which would lead to a desired reduction in the administrative burden. Among the specific proposed changes for business practice, they listed reducing premiums for social security and health insurance, linking the payment and application of VAT to the settlement of invoices, and introducing tax deductibility for provisions and adjusting entries.

“The individual technical changes in tax legislation are viewed by companies as a secondary consideration; of fundamental importance for their long-term planning is the stability and predictability of tax legislation as a whole. They’re still waiting for that in the Czech Republic,” explains Tomáš Zatloukal, legal executive of the company VorlíčkováLeitner. Lucie Vorlíčková is further appealing to the cabinet to focus special attention on “legislative hygiene” and improving relations between tax authorities, taxpayers and tax advisers. The OECD’s latest report (Tax Intermediaries Study: “The Enhanced Relationship”) could provide inspiration,
as could countries which are more advanced in this area, e.g. Switzerland (“Verhaltenskodex”). “The long road in this direction should begin with the first important step, to increase the responsibility of the financial authority by expanding the institution of the so-called binding ruling,” Lucie Vorlíčková recommends.

Respondents’ experience culminated in an unambiguous appeal to the Ministry of Finance: “Simplify the tax system and restrict the continual changes to it.” The fact that this is a completely realistic request can be demonstrated by looking to our
Slovak neighbours. A comparative analysis of a tax survey conducted in spring 2010 in Slovakia by our affiliate, BMBLeitner, shows that the Slovak tax system is evaluated more positively overall by foreign investors than its Czech counterpart. More than 40% of those surveyed characterised the Slovak tax system as efficient, stable and easy to understand.

Czech companies’ request for simplification also corresponds to their position on the possible blanket introduction of international accounting standards (IFRS). “The introduction of IFRS to a greater extent would mean an increased administrative burden but would not improve Czech companies’ business options on international markets,” adds Jaroslav Dubský, legal executive of VorlíčkováLeitner Audit, after evaluating the survey.

You can find the complete report on the tax survey in the Czech Republic on: http://www.vorlickova.cz/taxsurvey/

You can find the results of the tax survey in the Slovak Republic on: www.taxsurvey.sk

Press release to download (PDF)

About VorlíčkováLeitner

VorlíčkováLeitner is part of LeitnerLeitner Group, a leading company in the area of tax advising and audit services in central and south-eastern Europe (www.leitnerleitner.com). With a team of more than 700 employees working in eight different countries, LeitnerLeitner offers advisory services in the areas of national and international tax law, economic planning, and solutions made to order. Competence, reliability and speed – these are the principles which distinguish LeitnerLeitner. An individual approach, creativity and a continual effort to provide the highest added value of services are the qualities which LeitnerLeitner’s clients appreciate.

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Lucie Vorlíčková
Partner

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