Auditing operation No. 04/39
Fulfilment of the tax obligations related to fixed assets, which were handed over by the Land Fund of the Czech Republic
The auditing operation was included in the Annual Audit Plan of the Supreme Audit Office (hereinafter referred to as “SAO”) for the year 2004 under No. 04/39. The auditing operation was managed and the audit conclusion drawn up by Mr. Rudolf Němeček, Member of the SAO.
The aim of the audit was to examine whether tax avoidance did not occur.
The audited period covered the years 1993 to 2004 as well as following months in certain cases of relevant connections.
Audited bodies were the Ministry of Finance (hereinafter referred as “MF”), the Land Fund of the Czech Republic (hereinafter referred to as “LF”), and selected Land Register Offices and selected Tax Offices.
Auditors brought evidences that persons to whom the LF transferred state grounds without any payment referring to the Section 11 paragraph 2 of the Act No. 229/1991 Coll. and who were not entitled to it, breached statutory obligations linked with realty taxes including realty transfer taxes, and with the income tax. As a consequence of such avoidance to pay the stamp duty or income duty a shortening of taxes revenue has occurred, by which the State Budget or in certain cases a municipal budget has been usually hurt.
Transferees in some cases failed to fulfil their tax obligations, for example:
- Failed to declare their grounds to taxation;
- Failed to declare their transfers of grounds to taxation;
- Failed to declare their income gained from a paid realty transfer;
- Submitted their tax declarations (for realty tax and realty transfer tax) after statutory term.
Tax administrators were not able in some cases to clearly determine whether audited grounds were actually declared to realty taxation or not. In accordance with the MF directions, taxpayers who submitted a tax declaration on more than 15 grounds in one cadastral territory did not have to itemize ground-plot numbers by 2004. Tax administrator has had possibility to verify the correctness and the completeness of data in tax declarations only on the basis of tax inspections.
Tax administrators did not consistently use their statutory authority, namely:
- Did not look up relevant taxpayers and failed to commence a taxation procedure in time by their own initiative; as a result of that, a termination of right to impose a tax occurred in certain cases;
- Initiated taxation procedures by their own initiative as far as one or more years after the taxpayer’s obligations emerged;
- Failed to use the possibility to impose sanctions in cases of delayed tax declaration submission;
- Evaluating tax obligation of income tax after realty transfer they conducted not always in compliance with laws;
- Did not take into account the real content of the legal act; and they evaluated income from transfer of realties gained into ownership in position of transferees as a tax-free income. In such cases, it is not income from sale of grounds transferred pursuant to the Act No. 229/1991 Coll. The tax administrators came to the wrong judgement despite they should have been well familiarized with the matter from both the MF statements and the practice of the courts;
- They also neglected the fact that the taxpayer sold the grounds before lapse of five years after their gain and they judged even such income as a free tax income.