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Oct. 14 — International restaurant and fast-food chains—including the likes of McDonald’s Corp., Denny’s Inc. and Hard Rock Cafe International, Inc.—are expected to be among the beneficiaries of a new Czech Republic system of electronic records of sale (EET) in a move to more accurately capture value-added taxation.
Global food chains are expected to benefit from EET, set to launch in the Czech Republic on Dec. 1, as it will force bars and restaurants to report all or most of their sales, likely netting VAT on sales from smaller food outlets that were previously not captured.
The main goal of EET is the leveling of the playing field for all companies involved, Alena Schillerova, deputy finance minister for taxation and customs, told Bloomberg BNA in an Oct. 12 interview.
“The main expectation” is that EET “will straighten out the business environment. Today, those who pay their taxes are doing business next to those who don’t pay their taxes. That’s not equal conditions for everyone,” she said.
But it will also bring fiscal benefits, she added. According to the Czech Finance Ministry, the hospitality sector is currently the fourth largest source of the country’s shadow economy, and VAT collected from bars and restaurants could go up by as much as 9.4 billion koruna ($382 million) per year—from the current 1.6 billion.
EET will likely have two effects, according to Tomas Havel, tax manager, KPMG Czech Republic. “One is that those who are currently being dishonest will be forced to increase their prices and thus lose their competitive advantage,” he told Bloomberg BNA in an Oct. 12 email. Some may also “gain customers of those who leave the market as a result of EET,” he added.
But they will also benefit from the reduction in VAT on meals and non-alcoholic beverages, dropping to 15 percent from 21 percent—which will go hand-in-hand with the Dec. 1 launch of EET in an effort to help companies offset the costs of implementation.
Lower VAT on draft beer is still under consideration, Schillerova said.
The costs for implementing and maintaining EET compliance are considerable, particularly for chains as complex as McDonald’s, which in the Czech Republic has 93 restaurants. These are in turn run by 19 different operators, Zuzana Svobodova, a communications director for the U.S. fast-food chain, told Bloomberg BNA in an Oct. 11 email.
She estimated the cost of upgrading the chain’s proprietary system of cash registers to be in the millions of koruna and the cost of continued technical support to be in a similar range.
“It’s a great technical challenge for us,” Svobodova said. “Some of our restaurants are located in cities, others on highways. In some locations, we have had to strengthen Internet connections so as to be able to meet the legal conditions for sending data.
Technical documentation was published on May 11, six months ahead of the EET launch.
Svobodova said that for a chain of 93 restaurants, a unified system of cash registers and service support abroad, this is “a really short time.”
Still, she welcomed the introduction of the new system.
“It will certainly help us by making prices in a number of restaurants more realistic because they will have the obligation to record their revenue,” she said.
As of Dec. 1, EET will also apply to hotels, and then, as of March 1, 2017, extend to include retailers and wholesalers and, as of early to mid-2018, most other entrepreneurs engaged in activities that involve regular payments in cash or by credit card.
In all, between 500,000 and 600,000 individuals and business entities will become part of EET, according to the Czech finance ministry.
“The new Act on the electronic record-keeping of cash sales should have a positive effect in limiting the number of unrecorded sales by making it more difficult for the affected corporate and personal taxpayers to under-report,” Petra Sauerova, supervisor, corporate secretarial services, TMF Czech Republic, told Bloomberg BNA via an Oct. 11 email.
“This is because they will be required to record each sale immediately into the online system and that will prevent any modifications of the records for monthly or quarterly tax returns.”
But she warned this will come at a cost, as the technical aspect of this new legislative procedure could “be the biggest stumbling block for those required to report.”
“Some experts say that it is not possible to prepare the technical base in such a short time frame to implementation, and even if it is ready, there is the issue of the uninterrupted online connection required, which could be a problem in some business establishments.”
Although there have been calls for the launch of EET to be delayed unil at least after the Christmas season, which is the hospitality sector’s busiest, Schillerova said the Dec. 1 launch date was “totally definitive.”
But tax authorities will assume a consultative rather than enforcer role during the first few months to soften the impact, she said.
To contact the reporter on this story: Jan Stojaspal in Prague at firstname.lastname@example.org
To contact the editor responsible for this story: Penny Sukhraj at email@example.com
Details of the EET project are at http://www.etrzby.cz/cs/english-version-609.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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