Czech Republic Cracks Down on Tax Evasion: Effective Regret and Automatic Exchange of Information
Prague, 1.9.2018 – The Czech Republic is bolstering its efforts against tax evasion with the implementation of effective regret and automatic exchange of information. This is part of an international trend set by the Multilateral Agreement on Automatic Exchange of Financial Account Information.
Background
Tax crimes, including tax evasion, have long been a challenge in the Czech Republic. According to Section 240 of the Criminal Code, evading taxes is a punishable offense for anyone who knowingly contributes to such reductions. The damage threshold for this criminal offense is CZK 50,000.
Effective Regret
effective regret, a legal concept aimed at reducing criminal liability, can potentially be applied to tax offenders if they rectify their actions before discovery. In practice, this may involve taxpayers voluntarily admitting errors and paying the owed taxes prior to an audit. The Czech Republic recognizes both general and special variants of effective regret:
- General variant: voluntary admission and payment before audit
- Special variant: continued payment until the court judgment at the first instance is pronounced
The interpretation of these regulations has sparked debates amongst judges.
International Collaboration
The multilateral agreement enhances international cooperation and provides financial authorities with new tools to tackle international tax evasion. The agreement calls for the exchange of information on financial accounts held by non-residents. With 129 countries on board, this has become a significant global standard.
The Czech Republic integrated this agreement into its legal order via amendments to Act No. 164/2013 Coll. and responded to other EU legislation such as:
- Council Directive 2015/2376
- EU Council Directive 2016/881
As of September 17, 2017, the Czech Republic introduced automatic country-by-country reporting for multinational enterprise groups with a consolidated annual revenue exceeding € 750 million.
Impact on Effective Regret
Automatic exchange of information between financial authorities can facilitate the application of effective regret for tax offenses. Upon receiving information about unreported income, tax offices may invite taxpayers to explain its source and pay the owed taxes. Prompt taxpayers who can demonstrate tax compliance could potentially benefit from reduced penalties or even criminal liability exemptions.
Conclusion
The Czech Republic’s heightened attention towards tax crimes and its integration of international cooperation and automated information exchange underscore its dedication to combating tax evasion. The potential applicability of effective regret depends heavily on the specific circumstances surrounding each case. With the increasing prevalence of this exchange of information, taxpayers might need to carefully weigh the benefits and risks of employing effective regret in their dealings with tax authorities.