Business Multinational corporate tax declarations under the spotlight

23-02-2016 14:16 | Chris Johnstone

Czech tax authorities are reported to be taking a lot keener interest in the tax declarations and relations of major multinationals with local earnings.

Photo: ionut / FreeDigitalPhotos.netPhoto: ionut / Tales of the thin tax payments of global giants such as the likes of Google and Starbucks have been commonplaces over the past months. And it now appears that the Czech tax authorities are casting an ever closer eye over the income and tax payments of some of such multinational companies.

Just to give a quick picture of the Czech tax base: around a third of all wealth creation is taxed. The biggest earners are social security payments [around 15 percent of the total], followed by taxes on goods and services [around 11 percent], and taxes on income and profits [around 7.0 percent], according to OECD figures for 2014.

Companies can contribute to all of the above but a bit of financial sleight of hand and help from the accountant can probably make a big dent in the tax on profits category. And according to Tuesday’s edition of the business daily, Hospodářské Noviny, that’s one of the categories that’s now under the spotlight.

Special teams of lawyers and investigators are developing in various tax offices to check on international companies. One of the main areas of investigation are the relations between daughter and parent companies in different countries. After all, it’s a fairly well established accounting trick that parent companies can boost their earnings and cut their tax exposure by adding up a series of overcharged services for daughter companies in other countries or boosting the revenue flow where the tax burden is lowest.

At the moment, its reported that the biggest team of investigators has been established in Brno and tasked to look into the tax declarations and operations of some of the biggest earning companies. Links with foreign tax offices are being used to grapple with the complicated and sophisticated tax structures used by some multinationals to cover their tracks. The Brno model, it’s reported, should be rolled out to other regions fairly soon and the number of checks from individual tax offices is expected to take off as a result. Special software is also being used to highlight the companies whose books look like being the most suspicious.

Added to that fact, multinationals such as Google; Microsoft; or Volkswagen, the majority shareholder in the Czech Republic’s biggest car maker Škoda Auto, are from last year now obliged in their local tax declarations to give a broad outline of the payments made across the whole group structure.

And the cost of multinational tax avoidance or reduction in the Czech Republic? The government estimates the figure at around 5.0 billion crowns a year. That’s not so significant in comparison to the 70 billion crowns a year that the Ministry of Finance reckons should be curbed in gray economy earnings by electronic cash registers, but it’s still a significant slice of overall income.

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