Czech Tax Policy Unmoved by Shock Political Shakeup

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By Jan Stojaspal

The Czech Republic’s political crisis—culminating with the surprise resignation of its prime minister this week—is unlikely to change the government’s current tax policy, according to a senior finance ministry official.

“I am not a politician, but as deputy minister for taxation, I don’t see a problem” from the crisis, Alena Schillerova, the Czech Republic’s deputy finance minister for taxation and customs, told Bloomberg BNA in a May 3 interview. “The political situation has no impact on European directives, which we are obligated to implement.”

The political crisis is rooted in scrutiny of the wealth of billionaire Finance Minister Andrej Babis, and whether he committed tax fraud in amassing it. The crisis came to a head May 2 when the Czech prime minister, and Babis’s political rival, Bohuslav Sobotka announced at a special news conference that he would resign. With Sobotka saying that he could no longer work with Babis, the shock decision brought down the Czech government.

Calming fears that Sobotka’s resignation would alter tax policy, Schillerova told Bloomberg BNA that government has little left to complete on its tax agenda before parliamentary elections later this year.

Finance minister Babis—who denies any wrongdoing, and whose ANO political party has a double-digit lead in opinion polls—is committed to maintaining “a long-term stability and predictability of the tax environment,” she added.

A Case of Interest

At the May 2 news conference, Sobotka said Babis faces “serious suspicions that he committed grave tax fraud” while exploiting a legal loophole that allowed him to pay no tax on interest income from bonds issued by his Prague-based AGROFERT Group, a closely held conglomerate of more than 250 subsidiaries. Sobotka chose to resign to deny Babis the chance of casting himself as a political martyr, he added.

The prime minister’s resignation could mean a simple reshuffle of the government, but it may equally result in early elections to the lower house of the Czech parliament that were originally planned for October.

Petr Toman, a tax partner at KPMG Czech Republic, agreed that the current political crisis will have a “minimal impact” on the country’s near-term tax policy.

“Most of the laws that the government intended to submit to the parliament had been submitted by the end of April,” he told Bloomberg BNA in a May 2 telephone interview.

Babis Tax Policy

The Czech Republic’s tax policy under Babis has been characterized by strong emphasis on improving tax collection, while also improving legal certainty for both individuals and corporations.

According to Schillerova, the last major point on the government’s tax agenda—a tax package introducing faster refunds of value-added tax, domestic reverse charge for the supply of construction staff, and a blacklist of unreliable taxpayers—was signed into law last week.

The few remaining issues on the tax agenda include a proposal to close the legal loophole—the same one that allowed Babis to pay no tax on interest income from 1.48 billion koruna ($60.2 million) worth of corporate bonds he purchased from AGROFERT in 2012—and an amendment to the Czech Republic’s law No. 164/2013 on international cooperation in tax administration, according to Schillerova.

The amendment adds country-by-country reporting to information that is subject to automatic exchange of information between member countries of the European Union.

To contact the reporter on this story: Jan Stojaspal in Prague at correspondents@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

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