Czech finance offices clampdown on multinational tax avoidance

Ministry of Finance, photo: Filip Jandourek

A crackdown on the Czech outposts of multinational companies means that they have never paid so much tax to the state as in 2016, the business daily Hospodářské Noviny, reported on July 7.

The Ministry of Finance of the Czech Republic, photo: Filip Jandourek
Part of the record revenues stems from much closer tabs being kept on the cash flows between companies that are part of the same multinational empire. A trick used by international companies to cut their tax burden has been to either inflate earnings in subsidiaries in countries where corporate taxes are lower or to charge inflated prices for services carried out by a subsidiary in one country for that sited in another. In that way earnings are boosted and tax write-offs as well.

Wise to those ploys, Czech tax offices have taken advantage of increased information about business relations between the units of multinational companies to clamp down on such practices. Deputy minister of finance responsible for tax and customs issues, Alena Schillerová, told the paper that for thanks to the new information sources tax revenues had been increased significantly without a corresponding massive increase of intrusive checks on the companies themselves.

One of the extra tools at the disposal of the tax authorities is the VAT declarations which companies must regularly deliver. Another is the obligation for companies declaring losses to give a detailed picture of their dealings with foreign companies.

The specific impact of the increased information and slightly boosted finance office checks was a refusal last year to recognise claimed corporate tax losses amounting to 8.5 billion crowns last year, the finance ministry told the paper. The knock on effect of that was around 800 million crowns in extra tax revenues, around twice the figure resulting from similar moves a year earlier.

This though could well just be the tip of the iceberg. Past estimates from the ministry of finance suggest that Czech tax revenues undershot to the tune of 10 to 15 billion crowns a year as a result of the past financial maneuvers of the multinationals.