Is the value added tax system sustainable? The case of the Czech and Slovak Republics

sus ainabili y A icle Is he Value Added Tax Sys em Sus ainable? The Case o he Czech and Slo ak Republics Ka eˇ ina K zikallo á1,* and Filip Tošeno ský2 1Depa men o Accoun ing and Taxes, Facul y o Economics, VSB—Technical Uni e si y o Os a a, 17. lis opadu 15/2172, 708 00 Os a a, Czech Republic 2Depa men o Quali y Managemen , Facul y o Ma e ials Science and Technology, VSB—Technical Uni e si y o Os a a, 17. lis opadu 15/2172, 708 00 Os a a, Czech Republic; [email p o ec ed] *Co espondence: [email p o ec ed]; Tel.: +420-5973-22222 Recei ed: 7 May 2020; Accep ed: 16 June 2020; Published: 17 June 2020   Abs ac : The alue added ax is an impo an pa o e enues o he Eu opean Union and i s Membe S a es. The aim o he pape is o s a is ically analyse he ex en o posi i e impac o selec ed legisla i e measu es in oduced in he igh agains ax e asion and discuss subsequen ly he sus ainabili y o he cu en alue added ax sys em in he Eu opean con ex . The analysis was conduc ed o he Czech and Slo ak Republics, wo adi ionally s ong ading pa ne s, and o an impo an commodi y, coppe . In he analysis, eg ession me hods applied o o icial ime se ies da a on coppe expo om he Czech Republic o Slo akia we e employed oge he wi h app op ia e s a is ical es s o de ec po en ial signi icance o he new legisla i e ools, he alue added ax con ol s a emen and e e se cha ge mechanism. Mo eo e , he s udy conside s undamen al economic ac o s ha a ec o eign ade in pa allel. Based on he analysis, he e is sound e idence ha he majo his o ical u na ound expe ienced by he ime se ies ook place due o he hen o hcoming legisla i e measu es ha we e o es ain he possibili y o ca ousel auds. The esul s con i m he posi i e impac o he measu es and also sugges he necessi y o mo e sys ema ic changes in he ax sys em. Keywo ds: alueadded ax; axe asion; e e secha gemechanism; in e na ional ade; sus ainabili y; Eu opean Union 1. In oduc ion The main ole o axes in economy is o secu e income o public budge s [ 1 ]. Sch a zens alle [ 2 ] emphasizes ha an economically sus ainable ax sys em should gene a e su icien e enues o inance go e nmen ac i i ies. The p ocess o gaining su icien esou ces in ol es he use o ools o ackle ax e asion and a oidance. A dec ease in ax e asion boos s ax collec ion, he eby helping o inc ease he quali y o public se ices p o ided o ci izens by go e nmen s and municipali ies [ 3 ]. Taxes also a ec he beha iou o households and companies. The alue added ax (VAT), in compa ison o income ax, is no he p ima y ool o in luencing he dis ibu ion o ax bu den o s imula ing indus ies h ough in es men incen i es [ 4 ]. VAT educes ma ginal cos s o public unds and inc eases he ax a io. This way i becomes a e y e ec i e ool o mos o he coun ies ha adop ed i [ 5 ]. Resea ch esul s p oduced by Zimme manno á , Skaliˇcko á , and Ši ok ý [ 6 ], which a e i o he condi ions p e ailing in he Czech Republic, also show ha he e is a s a is ically signi ican and posi i e ela ionship be ween he egional VAT e enues and he egional GDP. This inding can help policy make s imp o e hei economic planning and managemen on egional and na ional le els. The sus ainabili y o a ax sys em is an essen ial pa o he sus ainabili y o he en i e economy. Jano á , Sus ainabili y 2020,12, 4925; doi:10.3390/su12124925 www.mdpi.com/jou nal/sus ainabili y Sus ainabili y 2020,12, 4925 2 o 25 Hampel, and Ne udo á [ 7 ] e en sugges ed a new concep in his ega d, he so-called ax sus ainabili y index, a ool ha can be used in o mula ing ax policies on na ional and EU le els. Tax e asion clea ly h ea ens economic sus ainabili y. Mo eo e , VAT is he ax ha is associa ed wi h ax e asion he mos , which u he highligh s i s impo ance. Acco ding o Hybka [ 8 ], he main eason o VAT e asion migh be he complica ed ules ha p e en i s p ope applica ion. The isk o ax e asion also a ises a a ime when he socie y’s a en ion is ocused on o he ma e s, now speci ically on he igh agains COVID-19. Fo ob ious easons, he inancial adminis a ion has limi ed access o ou ine con ol p ocedu es now, which auds e s a e well awa e o . This ac also unde lines he imeliness o his opic. VAT, like o he consump ion axes, is one o he mos ha monized axes in he Eu opean Union. In he Czech Republic speci ically, i is egula ed by he Ac No. 235/2004 Coll., on AT, as amended, which came in o e ec when he coun y joined he EU. The p o isions i in oduced we e based on he ele an Eu opean Communi y Di ec i e, namely he Six h Council Di ec i e 77/388/EEC o 17 May 1977, on he ha moniza ion o he laws o he Membe S a es ela ing o u no e axes—Common sys em o alue added ax: uni o m basis o assessmen . The Six h Di ec i e has been amended many imes and, on 1 Janua y 2007, was eplaced by he Council Di ec i e 2006/112/EC o 28 No embe 2006 on he common sys em o alue added ax (“VAT Di ec i e”) [ 9 ]. Ne e heless, he VAT Di ec i e has also been unde going changes and amendmen s since i s in oduc ion. The EU Membe S a es a e obliged o implemen mos o hese changes in o hei na ional legisla ion. Howe e , hey ha e a choice in some a eas, such as he e e se cha ge mechanism (RCM) o domes ic supplies o goods and se ices. This egime is olun a y o Membe S a es and is limi ed only by he scope o commodi ies in acco dance wi h he Di ec i e. This sys em was es ablished as one o he ools o igh ax e asion, pa icula ly auds in he chain and missing ade auds o ca ousel auds. The mechanism, unlike he common scheme, wi hin which VAT is decla ed on ou pu by he supplie and subsequen ly claimed by he pu chase , is cha ac e ized by he ule ha he obliga ion o decla e he ou pu ax is shi ed o he pu chase . A he same ime, he pu chase is en i led o he inpu ax deduc ion in acco dance wi h he gene al ules o applica ion o VAT ( he use o pu chased goods and se ices o he pu pose o ca ying ou an economic ac i i y). This scheme he e o e ies o a oid he si ua ions when he supplie issues an in oice wi h he ou pu ax, bu does no pay he ax, while he pu chase claims he inpu ax deduc ion. The applica ion o he common VAT sys em o domes ic supplies wi h he subsequen supply o goods o ano he Membe S a e ha is VAT exemp ed a ou s ax e asion, especially in he o m o he al eady men ioned ca ousel auds [ 10 ]. Gi en he impo ance o ax e asion elimina ion and i s s ong ela ion o VAT, he common VAT sys em wi hou su icien con ol mechanisms has been a majo weakness in he whole VAT sys em. The au ho s o he pape decided o s a e and s a is ically analyse he esea ch hypo hesis ha special measu es in oduced o comba ax e asion may ha e had a signi ican e ec on he o eign ade epo ing in he Czech Republic and Slo akia. Mo e speci ically, hey may ha e caused a s eep decline in coppe expo om he Czech Republic o Slo akia. The au ho s delibe a ely use he e m “s a is ical epo ing” he e because in many cases he e is no eal c oss-bo de supply o goods. The goods a e me ely eloca ed be ween he Membe S a es and, whe e app op ia e, hi d coun ies, o he pu pose o VAT auds, and hei mo emen can e en c ea e he so-called ca ousel ( o mo e explana ion o his e m, see Figu e 1). Ano he possibili y is ha he goods physically do no mo e a all, and he e is only ic i ious in oicing and epo ing. Fo his analysis, coppe commodi y and i s expo om he Czech Republic o Slo akia we e selec ed because hese ades we e accompanied by auds in he pas , and he wo coun ies pa icipa ed in adop ing ools agains VAT e asion. The esea ch speci ically conce ned he commodi y Re ined coppe and coppe alloys, unw ough (Ha monized sys em code 7403). The Czech Republic decided o use he RCM on a wide ange o commodi ies and se ices, while Slo akia was one o he i s coun ies o in oduce he VAT con ol s a emen . The o iginali y o his pape lies in he ac ha , unlike o he s udies o be e e enced in he nex sec ion, his analysis is based on mo e ad anced eg ession models, and also akes in o accoun undamen al Sus ainabili y 2020,12, 4925 3 o 25 economic ac o s ha may ha e a ec ed he o eign ade, as well. The esea ch, compa ed o o he s udies, is also applied o a di e en commodi y and conside s he in oduc ion o ye ano he measu e, he VAT con ol s a emen , in addi ion o he RCM. The ollowing sec ion desc ibes he p inciples go e ning ypical VAT auds, and ca ousel auds in pa icula , and p esen s some esul s o ela ed s udies in his a ea om o he au ho s. 2. Theo e ical F amewo k and Li e a u e Re iew Fi s , i is easonable o dis inguish ax a oidance om ax e asion. The main di e ence is be ween he legali y o he o me , when he beha iou o a axpaye is no agains he law, and he illegali y o he la e [ 11 , 12 ]. Tax a oidance o en esul s om shi s in comme cial ac i i y ela ed o in e na ional income ax s uc u e. Fo example, Clausing [ 13 ] in he s udy ound ou a s a is ically signi ican ela ion be ween ax a oidance incen i es and Ame ican in e na ional ade. Simila ly, o he au ho s, such as Bue ne and Ru [ 14 ], con i med a signi ican e ec o ax condi ions on he loca ion o subsidia ies o Ge man mul ina ional companies. Ne e heless, he undecla ed wo k is o en associa ed wi h bo h ax a oidance and e asion when i comes o pe sonal income ax and social insu ance con ibu ions. Fo mo e in o ma ion, see he empi ical esea ch done by K umply e and Samule icius [ 15 ] in Li huania. K ajˇn á k [ 16 ] also deals wi h selec ed aspec s o pe sonal income ax in he Czech Republic in his espec . Wha usually leads o ax e asion is he axpaye ’s a ge ed VAT liabili y educ ion. Unlike income ax, he e is a possibili y o ecei e an excessi e ax deduc ion, which is why VAT is e y popula o he pu pose o ax e asion. The VAT e asion can be ca ied ou only by VAT- egis e ed companies o sole p op ie o s [ 17 ]. I mus be men ioned, howe e , ha en ep eneu s and company managemen s a e only people whose s a egic decisions abou commi ing a c ime, especially ax e asion, a e no always in acco dance wi h he s anda d neoclassical economic model o human beha iou [ 18 , 19 ]. Mo e abou he heo y o i ms’ ax e asion can be ound in Sandmo [ 20 ], o ins ance, and he heo y o isk a e sion in connec ion wi h ax e asion is co e ed in Allingham and Sandmo [21] o Be nasconi [22]. Slem od [ 23 ] in his s udy poin s ou ha he main ac o in ax-e asion decisions is he chance o being de ec ed. Olsen, Kaspe , Kogle , Muehlbache and Ki chle [ 24 ] did an empi ical esea ch among sel -employed axpaye s om Aus ia and Ge many. This esea ch was ocused on men al accoun ing o income ax and VAT. Men al accoun ing is a p ocess o o ganizing inancial ope a ions, especially he en ep eneu s’ ax obliga ions. The esul s showed ha he inancially s apped, who a e less ca e ul and impulsi e, a e mo e willing o e ade axes. Age, sex and coun y o o igin do no play any ole. Wo h men ioning in his con ex is Po ugal which ies o igh VAT e asion in an o iginal way— h ough a ax lo e y. I s ci izens a e encou aged o mo i a ed o eques sales in oices wi h hei pe sonal ax iden i ica ion numbe so as o pa icipa e in a ax lo e y. Wilks, C uz and Sousa [ 25 ] claim ha hese iscal bene i s helped dec ease he VAT gap om 16% in 2013 o 12% in 2014, when he lo e y was in oduced. Simila ly, B azil and China in oduced a ax lo e y wi h he aim o encou age VAT compliance [26,27]. Ano he way how o educe VAT a oidance and e asion is o dec ease he VAT a es, acco ding o Kalliampakos and Ko zamani [ 28 ]. Thei s udy conce ning G eece sugges s a educ ion in he s anda d VAT a e om 24% o 20% and an es ablishmen o one, educed VAT a e o 10% applied only o selec ed goods and se ices wi h a socio-economic impac . The esul s o he s udy poin o a VAT e enue imp o emen . Taxes a e iewed om o he pe spec i es, as well. Fo ins ance, he e a e also a ious opinions and sugges ions on ax e o ms and hei impac om bo h he mic oeconomic and mac oeconomic poin o iew. McClellan [ 29 ], o ins ance, unde ook esea ch, using i m-le el da a on ax e asion and en o cemen and mac oeconomic da a om se en y-nine coun ies, o ind he e ec o ax en o cemen measu es and ax e enue dec ease on economic g ow h. On he one hand, dec ease in ax e enues causes mo e unds o co po a e in es men s, bu , on he o he hand, a dec ease in unds o public goods and se ices, as well. I means ha economic g ow h can be a ec ed by an inc ease in ax e enues as well as by ax en o cemen measu es. McClellan he e o e sugges s Sus ainabili y 2020,12, 4925 4 o 25 e o ms o inc ease ax e enues wi hou in oducing s ic ax en o cemen measu es. Howe e , a e y impo an aspec , sus ainabili y, also comes in o play. Timme mans and Ach en [ 30 ], o example, examined a po en ial con e sion o VAT o sales ax o damage and alue added ax (DaVAT). Based on he esul s o he esea ch, hey ecommend his shi as a consump ion ax e o m om he pe spec i e o sus ainable g ow h. The DaVAT is an en i onmen al-cha ac e sugges ion made by De Cammilis and Go alczyk [ 31 ], and i is buil on a di e en ia ion o ax a es acco ding o he li e cycle o a p oduc Tax e asion is he mos signi ican cause o he VAT gap, which is essen ially he di e ence be ween expec ed and ac ual VAT e enues [ 32 ]. The e a e se e al commonly used me hods o he gap es ima ion [ 33 ]. Ne udo á and Dob anschi [ 34 ] b ough a new app oach in his ega d, he so-called s ochas ic ax on ie model. A compa ison o esul s ob ained wi h a ious me hods designed o he case o he Czech Republic was made by Mo a ec, Hinke and Kaˇnka [ 35 ]. An ex eme gap came ou o he s udy by Cuceu and Vaidean [ 36 ] who emphasized ha Romania’s VAT gap, exp essed as a sha e o he VAT To al Tax Liabili y (VTTL), was 42% in 2011, he highes among he EU coun ies. Sus ainabili y 2020, 12, x FOR PEER REVIEW 5 o 25 Figu e 1. The p inciple o he basic ca ousel aud. Adop ed om [35], own p ocessing. Čejko á and Zídko á [45] made ano he esea ch ocused gene ally on he impac ha he in oduc ion o he RCM o was e and sc ap had had on he ax e enues in he Czech Republic. They disco e ed ha a e he implemen a ion o he measu e agains he VAT ca ousel auds, he ade be ween he Czech Republic and o he EU coun ies had dec eased, especially he in acommuni y supplies. Acco ding o hei calcula ions, he p esumed olume o ca ousel auds in he Czech Republic, ela ed o was e o sc ap, eached abou 56 million eu os/yea p io o RCM. A posi i e e ec o he RCM on aud educ ion was also con i med by S ille and Heinemann [46]. Thei esea ch was based on o eign ade da a, as well, his ime be ween Ge many and Aus ia. To men ion a non-Eu opean esea ch ini ia i e in his a ea o expe ise, a poll un by Yoon [47] among Sou h Ko ean small and medium-sized deale s in coppe , gold and s eel sc ap indica ed a posi i e e ec o RCM on ade anspa ency and ai ness. Simila esea ch and poll esul s sugges ed ha he RCM migh be he kind o ins umen he socie y needs in i s ba le agains VAT e asions. As ou lined ea lie , he au ho s o he pape le hemsel es be inspi ed by hese hin s and decided o subjec his ma e o a mo e igo ous s a is ical analysis, using da a on coppe expo om he Czech Republic o Slo akia and aking also in o accoun majo economic ac o s ha may in luence his kind o ade. Thei analysis is elabo a ed in he ollowing sec ions. 3. Ma e ials and Me hods The Czech Republic and Slo akia ank among he coun ies ha ac i ely s i e o inhibi ax e asion by adop ing di e se legisla i e measu es. In he ime pe iod 2006–2018 he coun ies in oduced he alue added ax con ol s a emen and e e se cha ge mechanism in his ega d. No long be o e doing so, he epo ed amoun o expo o coppe om he Czech Republic o Slo akia, iewed as a ime se ies, mani es ed a sudden and p onounced decline ha would la e u n ou o be pe manen . This is an in e es ing coincidence ha p o ides an oppo uni y o con i m, o ejec , ha he measu es we e co ec ly designed, a e unc ioning and should be used in p ac ice. The con i ma ion can be made p o ided ha he decline is p o ed o be he esul o a signi ican change in he o e all cha ac e o he ime se ies, no jus a na u al luc ua ion mos ime se ies a e subjec o, and he change was no induced by o he , mo e na u al ac o s, which would include he usual and majo economic o ces ha no mally a ec such ades. The au ho s decided o analyse bo h whe he he se ies did indeed expe ience a signi ican change in i s de elopmen , and i so, whe he such a u ning poin can be pu down o he legisla i e measu es and no economic o comme cial easons. This is done in he analy ical pa o he pape ha ollows. To e i y he possibili y o an unexpec ed change in he de elopmen o he se ies, he au ho s exploi ed he heo y o in e en ion models, a pa o he gene al ime se ies heo y [48,49]. These models assume ha he modelled se ies p og essed in ime in a ce ain way be o e a speci ic ime poin when i may ha e been suddenly and ei he empo a ily o pe manen ly shi ed by an in e en ion o ano he le el. I he shi is p esen , he de elopmen o he se ies is hen go e ned by Figu e 1. The p inciple o he basic ca ousel aud. Adop ed om [35], own p ocessing. Ca ousel auds in lic losses on bo h he public budge o a pa icula Membe S a e and he budge o he EU as a whole. Fo his eason, his is a p oblem ha has been unde spo ligh o qui e some ime. In his con ex , se e alsubs an ial e o ms o heVAT sys emwe e p oposed, al hough hei e ec i eness is o en ques ionable. One o he s udies, made by Gebaue , Nam and Pa sche [ 37 ] and ocused on he po en ial impac o h ee di e en VAT sys ems in Ge many, showed, o ins ance, ha hei implemen a ion would by con as gi e ise o o he possibili ies o ax a oidance and an inc eased adminis a i e bu den. The nega i e impac o adminis a i e bu den on small and medium-sized en e p ises is also s essed in Mikušo á[38]. Ca ousel aud o Missing T ade In a-Communi y (MTIC) aud ep esen s a mo e sophis ica ed VAT decep ion [ 39 ]. I s p inciple is ou lined in Figu e 1. Suppose ha all ade pa icipan s a e VAT- egis e ed in hei coun ies. Ini ially, a Company A, he “condui ” company [ 40 ], which is VAT- egis e ed in Membe S a e 1, supplies goods o he goods a e supplied only ic i ely ( he so-called “absence o ac ual supply”) o Membe S a e 2, while his ansac ion is VAT-exemp ed o he Company A (ze o- a ed). The cus ome , a Company B om Membe S a e 2, has he du y o cha ge he ou pu ax om he in acommuni y acquisi ion acco ding o he des ina ion p inciple, and a he same ime is allowed o claim he inpu ax. This means ha he acquisi ion om Membe S a e 1 is ax-neu al o he Company B. The goods should be axed by he VAT a e ha is applicable in he s a e o des ina ion, depending on he ype o goods. In he nex s ep, he Company B esells he commodi y o a Company C, he so-called “bu e ”, on i s domes ic ma ke . A his ins an , he Company B should cha ge he ou pu ax om his domes ic supply. Howe e , in he case o aud, he Company B does no submi he ax e u n and disappea s ( he e o e he company B is called he missing ade ), o submi s he ax e u n wi hou paying he ax liabili y o he ax adminis a ion. The loss in lic ed on he public unds will deepen when he Company C claims he igh o he inpu ax deduc ion om he in oice issued by he Company B. The e can also be a g ea numbe o VAT axpaye s in he posi ion o he bu e ha may no e en be awa e o being pa o a ca ousel aud. These companies Sus ainabili y 2020,12, 4925 5 o 25 make he de ec ion o he aud mo e di icul . In he nex s ep, ano he domes ic ansac ion akes place when he Company C supplies he obse ed commodi y o a Company D, which is ye ano he audulen company ha is called he “b oke “. In he end, he Company D supplies he goods om Membe S a e 2 o he Company A om Membe S a e 1 and he ci cle is closed. This in acommuni y supply is VAT-exemp ed o he Company D. The same goods some imes ci cle only ic i ely among he same VAT axpaye s se e al imes [41,42]. Figu e 1is only illus a i e, as in eali y many mo e companies a e in ol ed in he aud. Fo example, in 2016 he Financial Adminis a ion o he Czech Republic de ec ed a aud in ol ing 171 domes ic VAT axpaye s [43]. The Con ede a ion o Indus y o he Czech Republic [ 44 ] encou aged in his ega d an applica ion o he domes ic RCM o me als, poin ing o he decline in ade in he ein o ced s eel be ween he Czech Republic and Poland a e he in oduc ion o he RCM o his commodi y in Poland. I es ima ed he ax losses a wo billion Czech c owns. ˇ Cejko á and Z í dko á [ 45 ] made ano he esea ch ocused gene ally on he impac ha he in oduc ion o he RCM o was e and sc ap had had on he ax e enues in he Czech Republic. They disco e ed ha a e he implemen a ion o he measu e agains he VAT ca ousel auds, he ade be ween he Czech Republic and o he EU coun ies had dec eased, especially he in acommuni y supplies. Acco ding o hei calcula ions, hep esumed olumeo ca ousel audsin heCzech Republic, ela ed o was e o sc ap, eached abou 56 million eu os/yea p io o RCM. A posi i e e ec o he RCM on aud educ ion was also con i med by S ille and Heinemann [ 46 ]. Thei esea ch was based on o eign ade da a, as well, his ime be ween Ge many and Aus ia. To men ion a non-Eu opean esea ch ini ia i e in his a ea o expe ise, a poll un by Yoon [ 47 ] among Sou h Ko ean small and medium-sized deale s in coppe , gold and s eel sc ap indica ed a posi i e e ec o RCM on ade anspa ency and ai ness. Simila esea ch and poll esul s sugges ed ha he RCM migh be he kind o ins umen he socie y needs in i s ba le agains VAT e asions. As ou lined ea lie , he au ho s o he pape le hemsel es be inspi ed by hese hin s and decided o subjec his ma e o a mo e igo ous s a is ical analysis, using da a on coppe expo om he Czech Republic o Slo akia and aking also in o accoun majo economic ac o s ha may in luence his kind o ade. Thei analysis is elabo a ed in he ollowing sec ions. 3. Ma e ials and Me hods The Czech Republic and Slo akia ank among he coun ies ha ac i ely s i e o inhibi ax e asion by adop ing di e se legisla i e measu es. In he ime pe iod 2006–2018 he coun ies in oduced he alue added ax con ol s a emen and e e se cha ge mechanism in his ega d. No long be o e doing so, he epo ed amoun o expo o coppe om he Czech Republic o Slo akia, iewed as a ime se ies, mani es ed a sudden and p onounced decline ha would la e u n ou o be pe manen . This is an in e es ing coincidence ha p o ides an oppo uni y o con i m, o ejec , ha he measu es we e co ec ly designed, a e unc ioning and should be used in p ac ice. The con i ma ion can be made p o ided ha he decline is p o ed o be he esul o a signi ican change in he o e all cha ac e o he ime se ies, no jus a na u al luc ua ion mos ime se ies a e subjec o, and he change was no induced by o he , mo e na u al ac o s, which would include he usual and majo economic o ces ha no mally a ec such ades. The au ho s decided o analyse bo h whe he he se ies did indeed expe ience a signi ican change in i s de elopmen , and i so, whe he such a u ning poin can be pu down o he legisla i e measu es and no economic o comme cial easons. This is done in he analy ical pa o he pape ha ollows. To e i y he possibili y o an unexpec ed change in he de elopmen o he se ies, he au ho s exploi ed he heo yo in e en ionmodels, apa o hegene al imese ies heo y[ 48 , 49 ]. Thesemodels assume ha he modelled se ies p og essed in ime in a ce ain way be o e a speci ic ime poin when i may ha e been suddenly and ei he empo a ily o pe manen ly shi ed by an in e en ion o ano he Sus ainabili y 2020,12, 4925 6 o 25 le el. I he shi is p esen , he de elopmen o he se ies is hen go e ned by bo h he p e-in e en ion pa e n and he in e en ion. I he in e en ion akes place only a one poin in ime, i e en ually ades away and he se ies e u ns o i s p e-in e en ion p og ess. I , howe e , he in e en ion ac s pe manen ly, he se ies s ill ollows i s p e-in e en ion and na u al pa e n, bu e en ually on ano he le el. The la e case is he subjec o he analysis p esen ed he e, gi en how he expo o coppe his o ically de eloped. The e ec o he in e en ion is cap u ed in he model by a dummy a iable, which akes on alue ze o be o e he momen o he in e en ion and one a e he in e en ion. Since he ime se ies models used a e usually ecu si e in he sense ha he alue o he ime se ies is modelled as a unc ion o i s pas alues, he inclusion o he dummy a iable will cause ha he modelled alue o he se ies is pushed e en ually o ano he le el. To be mo e p ecise, his is he case when he model pa ame e e lec ing he e ec o he dummy a iable is nonze o. I i is ze o, he modelled se ies will no mo e pe manen ly o ano he le el. A e y gene al model ha desc ibes he de elopmen o a ime se ies z is o he o m [50] z =c+Xp i=1ϕiz −i+Xq j=1θja −j+a , (1) a =e σ ε ,e σ2 =d+X i=1γia2 −i+Xs j=1βje σ2 −j, (2) ε ∼N(0,1),ε0 s a e independen . (3) Equa ion (1) desc ibes he ime dynamics o he se ies. The se ies depends on i s pas alues and an addi ional noise a , which has he p ope ies o he s anda d whi e noise excep o i s condi ional a iance e σ2 , equal o he condi ional expec a ion o a2 , which e lec s he noise ola ili y as a unc ion o he ealiza ion o he s ochas ic p ocess up o ime . This ola ili y is no cons an in ime, as in he case o he s anda d whi e noise, bu de elops dynamically in ime, as well, a ea u e ypical o economic ime se ies. The dynamics o he ola ili y is cap u ed by (2). The pa ame e s c , ϕ1 , . . . , ϕp , θ1 , . . . , θq , d , γ1 , . . . , γ , β1 , . . . , βs o his ARMA(p,q)-GARCH(s, ) model a e es ima ed using he so-called likelihood unc ion, which is a unc ion o he pa ame e s, LT(unknown pa ame e s, ε1,. . . ,εT)=YT =12πe σ2 −1 2exp(−ε2 /2e σ2 ). (4) The es ima es o he unknown pa ame e s a e de ined as he alues o he pa ame e s ha maximize LT [ 50 ]. Fo hem o be ob ained, ini ial alues o a and e σ2 a e chosen sui ably, so ha he ecu sions (1) and (2) can be used o calcula e he alue o LT o a gi en se o pa ame e s in he op imiza ion. In p ac ice, log LT is maximized ins ead almos always, since his p ocedu e is simple , albei s ill complica ed as a nonlinea op imiza ion p oblem, while p o iding he same solu ion. The solu ion is consis en and asymp o ically no mally dis ibu ed unde gene al condi ions, which include he alidi y o (1)–(3). This esul allows he use o he model o pe o m s a is ical in e ence, i.e., hypo hesis es ing ela ed o he unknown pa ame e s and cons uc ion o con idence in e als o he pa ame e s. The p ocedu e is known as he maximum likelihood es ima ion. I is also used in he case when (1)–(3) is alid wi hou he no mali y assump ion, hough, in which case i is called he quasi-maximum likelihood es ima ion. The condi ions a e gene al enough o p o ide he es ima es wi h he desi ed s a is ical p ope ies e en o his no-no mali y case. Since nonlinea op imiza ion is ex emely complex an issue, gene ally speaking, he p ocedu e mus be done by a so wa e. The es ima ion and i s p ope ies ely on (1)–(3), wi h o wi hou no mali y, and he gene al condi ions. While i is ha dly e e possible o examine he gene al condi ions in p ac ice, (3) is checked a e he model is es ima ed, using he subsequen es ima es o ε . I he p ope ies o hese es ima es a e in line wi h he assump ion (3), o i s gene alized o m wi hou no mali y, i is concluded ha (1)–(3) may easonably ep esen he mechanisms ha gene a ed he se ies. This well-known s a is ical s a egy elies on he idea ha (1)–(3), wi h o wi hou no mali y, is gene al enough o Sus ainabili y 2020,12, 4925 7 o 25 cap u e he mechanisms behind he se ies, in which case he p ope model should yield es ima es o ε whose p ope ies mimick he p ope ies o ε because es ima es o ε a e simila o ε in la ge da a samples unde he gene al condi ions and he p ope ly selec ed model. I such es ima es a e no ound, hen ei he he selec ed model is inapp op ia e, o he mechanisms gene a ing he se ies a e so o e ly complex ha no e en he cons uc (1)–(3) su ices o hei desc ip ion. Such a pessimis ic conclusion, howe e , is made only a e many a emp s o ind he model ailed. The same logic is also applied o he ARMA-GARCH models en iched wi h exogenous a iables on hei igh -hand side, which esul s in he so-called ARMAX-GARCH models. A ep esen a i e o his class o models shall be used in he pape , since a dummy a iable, e lec ing he po en ial in e en ion, will be inse ed in he model on i s igh -hand side. We e e o [ 51 ] o a discussion o he po en ial hese models ha e. The model will be subjec o he checks in he pape . Using s anda d s a is ical p ocedu es, he app op ia e models will show ha he se ies on coppe expo unde wen a his o ical p og ess ha can be be e mimicked wi h he dummy a iable han wi hou i . Thissugges s ha hemechanisms de ining he beha iou o hese iesbe o e hein e en ion do no su ice o he p ope desc ip ion o i s pos -in e en ion de elopmen [52]. The conclusion ha some hing signi ican happened in he his o ical e ol emen o he se ies leads subsequen ly o an analysis o wha may ha e caused he shi . The analysis is ca ied ou by going h ough a ious economic and o he ac o s ha we e a wo k a ound he ime o he in e en ion. The analysis is da a—d i en. The da a sou ces used in ol e mainly in o ma ion om he Czech S a is ical O ice on c oss-bo de mo emen o goods, which includes coppe expo s om he Czech Republic o Slo akia, in o ma ion on coppe p ope ies and demand om he Coppe De elopmen Associa ion and he In e na ional Coppe Associa ion, da a om he se e MINING.com on he global coppe ma ke , da a om Mac o ends on coppe p ices, da a om T ading Economics on he Slo ak and he EU’s g oss domes ic p oduc his o y, annual epo s o he Czech Na ional Bank, which keep ack o he bank’s o eign exchange in e en ions, he eal- ime in o ma ion on exchange a es main ained by he se e Ku zy.cz and da a om Agence F ance-P esse on he Slo ak ca p oduc ion. 4. Resul s The au ho s o he pape a e conce ned wi h he possibili y ha he e may ha e been a ac o a wo k in he o m o an in e en ion ha occu ed in a sho pe iod o ime, bu had had a las ing e ec , gi en how he se ies on coppe expo om he Czech Republic o Slo akia de eloped. This may conce n speci ically he in e en ion induced by he measu e ha was in oduced in Slo akia in 2014 in he o m o he VAT con ol s a emen . This ype o epo ing allows a c oss-check o supplie s’ and cus ome s’ in oices o disclose he so-called missing ade aud, o he ela ed ca ousel aud, o he supply chain aud. Fo mo e in o ma ion abou his ool, see [ 53 ]. The in e en ion e ec may ha e also been co-p oduced by he RCM applied o coppe in he Czech Republic since 1 Ap il 2015. Tha his migh ha e been he case is sugges ed by he ac ha such illegal ading had aken place in he Czech Republic. F audulen ades in coppe occu ed in 2012 and he Czech e i o y played he ole o a geog aphic go-be ween in hem. The ades pu po ing o be based on impo and immedia e expo o coppe p oduc s ne e happened and we e epo ed on ade accoun s o a pu pose ully c ea ed comme cial chain in o de o p o i om he exis ing VAT mechanisms. This illegal ac i i y was disclosed by he Czech special eam Tax Cob a in coope a ion wi h Slo ak au ho i ies h ough he ope a ion called “Cup al” [ 54 ]. Tax Cob a is ep esen ed by he Financial Adminis a ion o he Czech Republic, he Cus oms Adminis a ion o he Czech Republic and he Uni o Comba ing Co up ion and Financial C ime. The eam de ec s, iden i ies and comba s selec ed ax e asion cases on bo h he ax and c iminal side. And he e we e mo e o hese cases. Fo mo e in o ma ion, see [ 55 ]. I mus be said ha al hough he Slo ak measu e was in oduced in 2014, he coun y’s plans o do so we e publicly known in ad ance, and so he ade s in ol ed in he auds had enough ime o cease hei c iminal ac i i ies be o e he measu e was ully pu in o ope a ion. Ob iously, doing so on he day he measu es came in o e ec o a e ha would ha e exposed hem easily o jus ice. Thus, one migh Sus ainabili y 2020,12, 4925 8 o 25 expec ha he plans o es ic such ading p ac ices could ha e esona ed in ad ance on he coppe ma ke a he ime p io o he d op in he expo s. To e i y his possibili y, he a o emen ioned heo y o in e en ion models was used, i s o de ec whe he he sha p u n in he ime se ies could a all be a ibu ed o a new egime in i s de elopmen , and i so, whe he such a change could be explained by he legisla i e measu es. The me hodology o in e en ion models is desc ibed in [ 49 , 52 ]. The co esponding analysis was ca ied ou in he s a is ical so wa e S a a. The en i e se ies con aining he da a on coppe expo om he Czech Republic o Slo akia consis ed o 149 obse a ions [ 56 ]. I is shown in Figu e 2. The se ies, y 149 =1, is no s a iona y, as is o en he case in economic applica ions. Sus ainabili y 2020, 12, x FOR PEER REVIEW 8 o 25 o de ec whe he he sha p u n in he ime se ies could a all be a ibu ed o a new egime in i s de elopmen , and i so, whe he such a change could be explained by he legisla i e measu es. The me hodology o in e en ion models is desc ibed in [49,52]. The co esponding analysis was ca ied ou in he s a is ical so wa e S a a. The en i e se ies con aining he da a on coppe expo om he Czech Republic o Slo akia consis ed o 149 obse a ions [56]. I is shown in Figu e 2. The se ies, 󰇝󰇞 , is no s a iona y, as is o en he case in economic applica ions. Figu e 2. Coppe expo om he Czech Republic o Slo akia in 3/2006–7/2018. Adop ed om [56], own p ocessing. The poin o in e en ion is usually unknown in in e en ion analyses, i is no pa o he da a. One way o p oceed in such cases is o make assump ions abou i s loca ion, using o he in o ma ion ou side he ime se ies da a, such as he economic undamen al ac o s and hei de elopmen . I was p ima ily his de elopmen ha led o he au ho s’ opinion ha i he e was an in e en ion, he 85 h da a poin in he se ies migh ha e been he momen , when he s a e measu es kicked in, as i was hen ha he se ies had emba ked on i s e e se p og ess, e en ually accele a ing i s decline o he poin o nea disappea ance, as compa ed o i s p e-in e en ion le els. To ca y ou he in e en ion analysis, s anda d p ocedu es we e ollowed. Fi s , he p e- in e en ion pa o he se ies, 󰇝󰇞  , was desc ibed by an ARMA o mo e complex s a iona y model applied o a p ope ans o ma ion ∆() o he da a. Once such a model was ound, i was en iched wi h an in e en ion, bina y a iable  ha ook on alue ze o be o e he in e en ion and one a e wa ds. The model wi h  basically says ha p io o he in e en ion he se ies an as desc ibed by he p e-in e en ion analysis and hen, a e he in e en ion ha emained in e ec om ha momen onwa d, he se ies s ill ollowed he p e-in e en ion mechanism, bu was o ced by  o slide o a new le el whe e i emained, being s ill go e ned by he p e-in e en ion mechanism. This is a e all sugges ed by Figu e 2. Al hough he p e-in e en ion model should be checked o i s app op ia eness, i is no impe a i e ha he check be ho ough a his s age o he analysis, because he model se es only as a hin as o which model could po en ially be used o he en i e se ies. The model o he whole se ies mus hen be checked ho oughly, howe e . The e o e, in he p e-in e en ion analysis, he au ho s used only some o he ools o show wha led hem subsequen ly o i s models wi h  o he se ies. Rega ding he p e-in e en ion p ocedu e, a ans o ma ion o he co esponding se ies, ∆(), which would make he se ies s a iona y in he mean and a iance, was sea ched o in he i s s ep. To do so, d was se o 1 and ans o ma ions o he o m ()=  , ∈ 󰇝-1, -0.9, -0.8,…, 0.8, 0.9, 1󰇞, we e analysed. T was o s abilize he luc ua ions in he se ies, he e o e a was selec ed so ha max |∆ |/min |∆ | was minimized. The esul was =0.6 wi h max |∆ |/ min |∆ |= 65.76. The se ies ∆ . is shown in Figu e 3. 0 100 200 300 400 500 600 1 21416181101121141 Millions o c owns Da a uni Coppe expo om Czechia do Slo akia Figu e 2. Coppe expo om he Czech Republic o Slo akia in 3/2006–7/2018. Adop ed om [ 56 ], own p ocessing. The poin o in e en ion is usually unknown in in e en ion analyses, i is no pa o he da a. One way o p oceed in such cases is o make assump ions abou i s loca ion, using o he in o ma ion ou side he ime se ies da a, such as he economic undamen al ac o s and hei de elopmen . I was p ima ily his de elopmen ha led o he au ho s’ opinion ha i he e was an in e en ion, he 85 h da a poin in he se ies migh ha e been he momen , when he s a e measu es kicked in, as i was hen ha he se ies had emba ked on i s e e se p og ess, e en ually accele a ing i s decline o he poin o nea disappea ance, as compa ed o i s p e-in e en ion le els. To ca y ou he in e en ion analysis, s anda d p ocedu es we e ollowed. Fi s , he p e-in e en ion pa o hese ies, y 84 =1 , was desc ibed by anARMA o mo e complex s a iona y modelapplied oa p ope ans o ma ion ∆dT(y ) o he da a. Once such a model was ound, i was en iched wi h an in e en ion, bina y a iable S ha ook on alue ze o be o e he in e en ion and one a e wa ds. The model wi h S basically says ha p io o he in e en ion he se ies an as desc ibed by he p e-in e en ion analysis and hen, a e he in e en ion ha emained in e ec om ha momen onwa d, he se ies s ill ollowed he p e-in e en ion mechanism, bu was o ced by S o slide o a new le el whe e i emained, being s ill go e ned by he p e-in e en ion mechanism. This is a e all sugges ed by Figu e 2. Al hough he p e-in e en ion model should be checked o i s app op ia eness, i is no impe a i e ha he check be ho ough a his s age o he analysis, because he model se es only as a hin as o which model could po en ially be used o he en i e se ies. The model o he whole se ies mus hen be checked ho oughly, howe e . The e o e, in he p e-in e en ion analysis, he au ho s used only some o he ools o show wha led hem subsequen ly o i s models wi h S o he se ies. Rega ding he p e-in e en ion p ocedu e, a ans o ma ion o he co esponding se ies, ∆dT(y ) , which would make he se ies s a iona y in he mean and a iance, was sea ched o in he i s s ep. To do so, dwas se o 1 and ans o ma ions o he o m T(y )=ya , a∈{−1, −0.9, −0.8,. . . , 0.8, 0.9, 1} , we e analysed. Twas o s abilize he luc ua ions in he se ies, he e o e awas selec ed so ha max a∆ya /min a∆ya  was minimized. The esul was a= 0.6 wi h max a∆ya /min a∆ya = 65.76. The se ies ∆y0.6 is shown in Figu e 3. Sus ainabili y 2020,12, 4925 9 o 25 Sus ainabili y 2020, 12, x FOR PEER REVIEW 9 o 25 Figu e 3. T ans o ma ion ∆ .,  = 1, … , 84, o he o iginal se ies. Own p ocessing. The augmen ed Dickey-Fulle es wi hou de e minis ic end and wi h maximum lag o i e, p o ided by S a a, e u ned he alue −3.757 o he es s a is ic and he c i ical alues −3.542, −2.908, and −2.589 a one, i e and en pe cen signi icance le els, espec i ely. Thus, assuming a his ea ly s age ha he ans o med da a a e a ealiza ion o a s a iona y p ocess, au oco ela ions (ACF) and pa ial au oco ela ions (PACF) we e calcula ed o he ans o med se ies (Figu es 4 and 5). Figu e 4. Au oco ela ions (ACF) o he se ies ∆ .,  = 1, … , 84. Own p ocessing. Figu e 5. Pa ial au oco ela ions (PACF) o he se ies ∆ .,  = 1, … , 84. Own p ocessing. Using 99% bands, he ACF and PACF u ned ou o be signi ican only a lag one. In heo y, MA(1) p ocesses ha e a signi ican ACF spike a lag one only ( his case), while he PACF con e ges o ze o only e en ually, and mono onically on he nega i e side i he ue MA(1) model coe icien is nega i e. Howe e , a ue MA(1) p ocess o leng h less han one hund ed alues wi h a nega i e coe icien can easily be gene a ed, whe e he PACF spike a lag one is signi ican , whe eas he o he PACF spikes a e insigni ican and appea on bo h sides o he x-axis ( he case he e again). A simila -1000 -500 0 500 1000 1 1121314151617181 Di e enced, powe ed se ies Da a uni T ans o med coppe expo -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 1 6 11 16 21 Au oco ela ions in he se ies Time lag ACF o he p e-in e en ion se ies -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 1 6 11 16 21 Pa ial co ela ions in he se ies Time lag PACF o he p e-in e en ion se ies Figu e 3. T ans o ma ion ∆y0.6 , =1,..., 84, o he o iginal se ies. Own p ocessing. The augmen ed Dickey-Fulle es wi hou de e minis ic end and wi h maximum lag o i e, p o ided by S a a, e u ned he alue − 3.757 o he es s a is ic and he c i ical alues − 3.542, − 2.908, and − 2.589 a one, i e and en pe cen signi icance le els, espec i ely. Thus, assuming a his ea ly s age ha he ans o med da a a e a ealiza ion o a s a iona y p ocess, au oco ela ions (ACF) and pa ial au oco ela ions (PACF) we e calcula ed o he ans o med se ies (Figu es 4and 5). Sus ainabili y 2020, 12, x FOR PEER REVIEW 9 o 25 Figu e 3. T ans o ma ion ∆ .,  = 1, … , 84, o he o iginal se ies. Own p ocessing. The augmen ed Dickey-Fulle es wi hou de e minis ic end and wi h maximum lag o i e, p o ided by S a a, e u ned he alue −3.757 o he es s a is ic and he c i ical alues −3.542, −2.908, and −2.589 a one, i e and en pe cen signi icance le els, espec i ely. Thus, assuming a his ea ly s age ha he ans o med da a a e a ealiza ion o a s a iona y p ocess, au oco ela ions (ACF) and pa ial au oco ela ions (PACF) we e calcula ed o he ans o med se ies (Figu es 4 and 5). Figu e 4. Au oco ela ions (ACF) o he se ies ∆ .,  = 1, … , 84. Own p ocessing. Figu e 5. Pa ial au oco ela ions (PACF) o he se ies ∆ .,  = 1, … , 84. Own p ocessing. Using 99% bands, he ACF and PACF u ned ou o be signi ican only a lag one. In heo y, MA(1) p ocesses ha e a signi ican ACF spike a lag one only ( his case), while he PACF con e ges o ze o only e en ually, and mono onically on he nega i e side i he ue MA(1) model coe icien is nega i e. Howe e , a ue MA(1) p ocess o leng h less han one hund ed alues wi h a nega i e coe icien can easily be gene a ed, whe e he PACF spike a lag one is signi ican , whe eas he o he PACF spikes a e insigni ican and appea on bo h sides o he x-axis ( he case he e again). A simila -1000 -500 0 500 1000 1 1121314151617181 Di e enced, powe ed se ies Da a uni T ans o med coppe expo -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 1 6 11 16 21 Au oco ela ions in he se ies Time lag ACF o he p e-in e en ion se ies -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 1 6 11 16 21 Pa ial co ela ions in he se ies Time lag PACF o he p e-in e en ion se ies Figu e 4. Au oco ela ions (ACF) o he se ies ∆y0.6 , =1,..., 84. Own p ocessing. Sus ainabili y 2020, 12, x FOR PEER REVIEW 9 o 25 Figu e 3. T ans o ma ion ∆ .,  = 1, … , 84, o he o iginal se ies. Own p ocessing. The augmen ed Dickey-Fulle es wi hou de e minis ic end and wi h maximum lag o i e, p o ided by S a a, e u ned he alue −3.757 o he es s a is ic and he c i ical alues −3.542, −2.908, and −2.589 a one, i e and en pe cen signi icance le els, espec i ely. Thus, assuming a his ea ly s age ha he ans o med da a a e a ealiza ion o a s a iona y p ocess, au oco ela ions (ACF) and pa ial au oco ela ions (PACF) we e calcula ed o he ans o med se ies (Figu es 4 and 5). Figu e 4. Au oco ela ions (ACF) o he se ies ∆ .,  = 1, … , 84. Own p ocessing. Figu e 5. Pa ial au oco ela ions (PACF) o he se ies ∆ .,  = 1, … , 84. Own p ocessing. Using 99% bands, he ACF and PACF u ned ou o be signi ican only a lag one. In heo y, MA(1) p ocesses ha e a signi ican ACF spike a lag one only ( his case), while he PACF con e ges o ze o only e en ually, and mono onically on he nega i e side i he ue MA(1) model coe icien is nega i e. Howe e , a ue MA(1) p ocess o leng h less han one hund ed alues wi h a nega i e coe icien can easily be gene a ed, whe e he PACF spike a lag one is signi ican , whe eas he o he PACF spikes a e insigni ican and appea on bo h sides o he x-axis ( he case he e again). A simila -1000 -500 0 500 1000 1 1121314151617181 Di e enced, powe ed se ies Da a uni T ans o med coppe expo -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 1 6 11 16 21 Au oco ela ions in he se ies Time lag ACF o he p e-in e en ion se ies -0.4 -0.3 -0.2 -0.1 0 0.1 0.2 1 6 11 16 21 Pa ial co ela ions in he se ies Time lag PACF o he p e-in e en ion se ies Figu e 5. Pa ial au oco ela ions (PACF) o he se ies ∆y0.6 , =1,..., 84. Own p ocessing. Using 99% bands, he ACF and PACF u ned ou o be signi ican only a lag one. In heo y, MA(1) p ocesses ha e a signi ican ACF spike a lag one only ( his case), while he PACF con e ges o ze o only e en ually, and mono onically on he nega i e side i he ue MA(1) model coe icien is nega i e. Howe e , a ue MA(1) p ocess o leng h less han one hund ed alues wi h a nega i e Sus ainabili y 2020,12, 4925 16 o 25 o hei ad an age. Fo he explana ion o he e m “missing ade ”, see Sec ion 2and Figu e 1. Such indings we e also made by ˇ Cejko á and Z í dko á [ 45 ]. This may also be he explana ion why in 2013, he o al coppe impo o Slo akia was smalle han ha om he Czech Republic. Based on hese da a, he e is a good chance ha no a small amoun o he coppe impo s o Slo akia om he Czech Republic ep esen ed aud, and undamen al economic ac o s a e o no impo ance o such ades. Table 6. Coppe impo o Slo akia om he wo ld (line 1) and he Czech Republic (lines 2—CZSO, 3—SOSR). Adap ed om [56,73], own p ocessing. Yea s 2011 2012 2013 2014 2015 2016 2017 To al impo o SK 89,178 182,729 80,083 127,579 74,526 86,501 82,051 Impo o SK om CR 59,313 139,229 170,596 76,603 3204 699 1198 Impo o SK om CR 19,503 17,020 12,847 50,112 2555 3908 3115 Las bu no leas , acco ding o he CZSO [ 56 ], he coppe expo did no seem o shi om he Czech Republic o o he coun ies ei he , as a subs i u e o Slo akia, because ha expo d opped, as well, see Table 7. In e es ingly enough, he e e se cha ge mechanism on his commodi y was in oduced also in o he neighbou ing s a es, such as Aus ia and Poland. Table 7. Coppe expo om he Czech Republic (in hs. o EUR). Adap ed om [ 56 ], own p ocessing. Yea 2011 2012 2013 2014 2015 2016 2017 Expo o SK 59,313 139,229 170,596 76,603 3204 699 1198 To al expo 82,525 195,788 306,130 149,445 25,956 9999 10,172 To sum up, i is di icul o ind a single majo economic o comme cial ac o ha would explain sa is ac o ily why he coppe expo s om he Czech Republic o i s neighbou ook a sha p u n a he beginning o 2013 and hen sh ank pe manen ly. The only majo ex e nal mechanism concei able a ha ime we e he wo measu es planned by he Czech Republic and Slo akia in hei igh agains VAT auds. 5. Upcoming and P oposed Changes in he VAT Rules wi hin he Eu opean Union As we ha e seen he e is a good chance ha he special ools such as VAT con ol s a emen and RCM make sense in he ba le wi h ax auds e s. This sec ion co e s o he s eps aken o p oposed by he EU bodies, and commen s on hei s eng hs and weaknesses. A e all, he s udies p esen ed in his pape , as well as he Eu opean Commission’s ac ions, showed ha VAT e asion is a p essing p oblem ha canno be o e come by a simple solu ion. I needs a numbe o sys ema ic measu es. Following he esul s o he public consul a ion “The G een Pape on he Fu u e o VAT” [ 74 ], he Eu opean Commission p epa ed “The Ac ion Plan on VAT” [ 75 ]. The plan con ains p oposals ha aim o imp o e ax collec ion, in oduce addi ional ins umen s o comba ax e asion, educe adminis a i e bu den on SMEs in B2C ansac ions, imp o e e iciency o ax adminis a ion and mode nize VAT a es. A e he adop ion o he plan, he Eu opean Commission app o ed se e al di ec i es and p epa ed a numbe o o he p oposals in his ield. Fi s , in line wi h he opic o his pape , i is necessa y o men ion he p oposal o a de ini i e VAT sys em o in acommuni y B2B ansac ions. This sys em, which could come in o e ec in 2022, means ha goods would be axed in he Membe S a e ha is i s inal des ina ion. In ela ion o he sys em, he ins i u e o ce i ied axable pe son (CTP) would be es ablished. The adop ion o he sys em would no b ing any changes o he cu en p ocedu e o CTPs whose pa ne s a e CTPs om o he Membe S a es. The cus ome would s ill be liable o collec VAT on he e e se cha ge basis. Howe e , his ins i u e would be g an ed only o VAT axpaye s who mee ela i ely s ic Sus ainabili y 2020,12, 4925 17 o 25 condi ions. Fo mo e in o ma ion on hem, see [ 76 ]. I is ob ious ha his change may nega i ely a ec SMEs. The eason is ha unlike CTPs, VAT axpaye s wi hou he ce i ica ion would ha e o pay he ax in he des ina ion s a e a he a e applicable in ha coun y h ough he “One S op Shop”. On he one hand, he “One S op Shop” sys em is a acili a ion because he supplie pays he ax liabili y o all s a es wi h one paymen in his home s a e. On he o he hand, he supplie mus always check he VAT a e, which is applicable in he coun y o des ina ion, o each deli e ed commodi y. A he same ime, he ecapi ula i e s a emen would be cancelled, which would complica e he wo k o ax au ho i ies because hey would lose in o ma ion abou indi idual in acommuni y supplies. This si ua ion may a ou VAT e asion on a di e en basis. A e y impo an aspec is he ex ension o he possibili y o applying he a o emen ioned ins umen in he igh agains ax e asion, he RCM. Applica ion o his measu e is p olonged un il June 2022, and is go e ned by Council Di ec i e (EU) 2018/1695 o 6 No embe 2018, amending Di ec i e 2006/112/EC on he common sys em o alue added ax as ega ds he pe iod o applica ion o he op ional e e se cha ge mechanism in ela ion o supplies o ce ain goods and se ices suscep ible o aud and o he Quick Reac ion Mechanism agains VAT aud [ 77 ]. The p e ious RCM di ec i es, especially Council Di ec i es 2013/42/EU [ 78 ] and 2013/43/EU [ 79 ], we e e ec i e un il 31 Decembe 2018. Mo eo e , due o he magni ude o ca ousel auds, some Membe S a es including he Czech Republic and Slo akia called o a solu ion ha would no limi he scope o commodi ies and se ices o he RCM and would he e o e simpli y he applica ion o VAT in domes ic supplies. This is why he Eu opean Commission app o ed Council Di ec i e (EU) 2018/2057 o 20 Decembe 2018, amending Di ec i e 2006/112/EC on he common sys em o alue added ax as ega ds he empo a y applica ion o a gene alised e e se cha ge mechanism in ela ion o supplies o goods and se ices abo e a ce ain h eshold [ 80 ]. Howe e , each Membe S a e has o mee se e al c i e ia acco ding o he A icle 199c o he VAT Di ec i e in o de o apply o he implemen a ion o he gene alized RCM (GRCM). The mechanism will be applied o domes ic supplies o goods and se ices abo e he h eshold o 17,500 eu os pe ansac ion. O cou se, in ela ion o his limi , he Membe S a es should p e en he po en ial ci cum en ion o he GRCM by a i icially spli ing he axable amoun o he axpaye s’ ansac ions. Fo una ely, he Czech Republic and Slo akia a e among he coun ies ha a e able o moni o his po en ial new way o VAT aud ia he VAT con ol s a emen s. In any case, implemen a ion o his measu e can lead o mig a ion o ca ousel auds o o he Membe S a es ha canno implemen he GRCM and can gene a e a nega i e impac on he in e nal ma ke . The e o e, he neighbou ing coun ies will be able o apply his sys em e en i hey do no mee he c i e ia based on he Di ec i e 2018/2057, as i is clea ha he auds would mo e o hei a ea. The Czech Republic has al eady ob ained a pe mission o applica ion o he GRCM om he Eu opean Commission and an app o al o he Eu opean Council. Un o una ely, he measu e can be applied only o a sho ime pe iod, om 1 July 2020 o 30 June 2022. Fo his eason, he Czech Republic has no inco po a ed his ool in i s legisla ion and decided o seek i s p olonga ion [81]. On he one hand, he GRCM seems o be a sui able ool o ackle VAT e asion. On he o he hand, i is s ill ob ious ha i could b ing complica ions o companies, whose business pa ne s a e bo h VAT and non-VAT paye s. I could inc ease adminis a ion cos s and scope o mis akes caused by imp ope case-speci ic applica ion o his sys em. In addi ion, i can cause p oblems in business ac i i ies ha a e VAT-exemp ed, such as ce ain inancial o insu ance se ices. Also, he RCM has no been p o ed o be qui e e ec i e in comba ing VAT aud in Poland, o ins ance. Fo his eason, he measu e was eplaced in he coun y by he manda o y spli -paymen mechanism, e ec i e om 1 No embe 2019. This mechanism is applied o selec ed se ices and commodi ies, such as cons uc ion se ices, s eel p oduc s and non- e ous me als including coppe . In ol ed a e B2B ansac ions exceeding he limi PLN 15,000. The p inciple o he mechanism lies in spli ing he paymen o a ansac ion in o a ax base and he ax. The ax base is paid o he accoun o he supplie ha is commonly used o business and he VAT is deposi ed in o a sepa a e VAT Sus ainabili y 2020,12, 4925 18 o 25 accoun . This special accoun is used only o he paymen o VAT liabili y o he ax adminis a ion [ 82 ]. Ne e heless, his sys em has been olun a y since 1 July 2018 in Poland and since 1 Ap il 2011 in he Czech Republic [ 83 ]. The main disad an age o his sys em is an inc ease in compliance cos s. In addi ion, he conclusions o a s udy made by S oicea and Io ga [ 84 ] show a nega i e impac on insol en ag icul u al companies due o hei educed chance o eco e y. In Romania, he sys em has been manda o y o s a e companies and companies in insol ency since Janua y 2018. Poland also in oduced ano he measu e in i s igh agains ca ousel auds, he STIR-In o ma ion Sys em o he Reconcilia ion Chambe , in e ec since 1 Janua y 2018. I is a so wa e ha enables us o de ec he isk o iscal- aud occu ence. The sys em equi es inancial ins i u ions o p o ide da a o analysis o he Polish ax adminis a ion. Fo mo e in o ma ion abou he ool, see, e.g., [83]. The so-called “quick ixies” is also wo h men ioning in his con ex . These a e measu es o imp o e he VAT sys em o in acommuni y supplies o goods. Changes in he sys em a e egula ed by Council Di ec i e 2018/1910 o 4 Decembe 2018, amending Di ec i e 2006/112/EC as ega ds he ha monisa ion and simpli ica ion o ce ain ules in he alue added ax sys em o he axa ion o ade be ween Membe S a es [ 85 ]. The Di ec i e egula es in acommuni y supplies unde call-o s ock a angemen s and supplies o goods in he chain. The EU Membe S a es shall apply hose p o isions om 1 Janua y 2020. In any case, alking abou he de elopmen o VAT ules, he EU canno be isola ed om he es o he wo ld. This app oach could cause double axa ion o no axa ion, especially in he case o c oss-bo de supply o se ices and in angibles. The e o e, se e al chap e s o “The In e na ional VAT/GST Guidelines” we e adop ed in mo e han 100 coun ies [86]. 6. Discussion Based on he esul s o he s a is ical analysis p esen ed in his pape and o he Eu opean Commissions’ planned s eps, he au ho s’ a ou he iew ha one o he mo e app op ia e op ions in he igh agains ax e asion is he in oduc ion o he GRCM ha Membe S a es will be allowed o apply om 1 Janua y 2020. I seems ha he Czech Republic will be one o he pionee s o ully implemen his sys em. Howe e , such measu es should be implemen ed in he Membe S a es simul aneously, ega ding bo h he ime ame and he ange o commodi ies and se ices. Mo eo e , di e ences exis in he limi s o applying he scheme in indi idual Membe S a es. This means ha ax e ade s ha e endency o a i icially di ide hei supplies so ha hey ge unde he inancial limi , and he egime does no apply o hem. They can hen use he classical inpu -ou pu VAT egime. The misma ch speci ically a ises when one o he s a es se s a limi o he applica ion o he scheme and a neighbou ing s a e applies ha scheme wi hou a billing h eshold (e.g., he Czech Republic and he neighbou ing Slo akia). Gene ally, di e ences in he implemen a ion o he egime in indi idual coun ies help mo e hese auds o s a es whe e he egime has no been pu in o p ac ice. The esul s o he analysis imply ha he common VAT sys em, cu en ly applied in he EU, is no sus ainable and equi es e o ms. I is necessa y o emphasize, howe e , ha all coun ies should p epa e signi ican legisla i e changes in acco dance wi h he Uni ed Na ions’ 2030 Agenda o Sus ainable De elopmen . The Czech Republic included equi ed sus ainable-de elopmen goals in i s documen S a egic F amewo k Czech Republic 2030. The documen , among o he hings, con ains a SWOT analysis which men ions a simple, anspa en and p edic able ax sys em as one o i s oppo uni ies and gene ally high adminis a i e bu den as one o he weaknesses [87]. No wi hs anding, acco ding o heau ho s, he newsys em p oposedby heEu opeanCommission, he in oduc ion o he CTP including a de-ha moniza ion o VAT a es, could lead o he opposi e si ua ion. I could lead o unce ain y ega ding applica ion o co ec VAT ules, which could dis o he in e nal ma ke , inc ease he adminis a i e bu den on businesses and cause di icul y in iden i ying and e i ying in o ma ion on ading pa ne s ha a e o en no up o da e. Implemen a ion o hese p inciples would ha e a nega i e impac on he small and medium-sized en e p ises ha do no ha e su icien inancial and ime esou ces o e i y such in o ma ion. Sus ainabili y 2020,12, 4925 19 o 25 Also, i should no be o go en ha despi e he ac ha many o he esea ch s udies men ioned in he heo e ical pa o he pape con i med a posi i e e ec o he RCM, Poland, ano he neighbou o he Czech Republic, happened o ind ou ha i migh no be so s ong a mechanism by i sel as was expec ed, which is why he coun y es ablished he spli -paymen mechanism. This means ha he paymen is spli in o a ax base and VAT. The VAT is sen o a special accoun and hen passed on o he ax adminis a ion. The obliga ion is alid bo h o he companies esiding in Poland and he companies esiding in ano he coun y, bu egis e ed o VAT in Poland. The sys em is applied in Poland only o selec ed goods and se ices. In he au ho s’ opinion, his should be applied gene ally. This migh also be a good way o igh ax e asion. The e is a possibili y o use he spli -paymen sys em on a olun a y basis in he Czech Republic oo. Howe e , his mechanism is used e y seldom, only in he cases when he cus ome has a easonable ea ha he supplie will no pay he VAT o he ax adminis a ion. I mus be no ed ha he supplie has o ag ee wi h he applica ion o he mechanism. The adminis a i e bu den and ela ed compliance cos s a e also e y high. Ano he disad an age o he spli -paymen sys em is ha he sys em can b ing liquidi y p oblems o businesses whose inpu s a e axed wi h a s anda d VAT a e, while hei ou pu s a e subjec o a educed o supe - educed VAT a e. In he Czech Republic, his is he case o he cons uc ion indus y, especially social housing. Las bu no leas , due o he impo an impac on cash low, he sys em could ha e nega i e e ec on insol en en i ies. Ano he ool ha could inspi e he Czech go e nmen o o he Membe S a es is he Poland’s IT sys em STIR. STIR is able o analyse da a on money ans e s among bank accoun s used by businesses and de ec o ganized c iminal ac i i ies on he iscal basis. E en i he sys em wo ks ela i ely au oma ically, he e is some h ea , hough, ha inancial ins i u ions will compensa e he inc ease in compliance cos s by aising hei own ees. Based on he esul s o his s udy, he au ho s ecommend an in oduc ion o se e al measu es agains ax e asion a he same ime, o in a sho ime ame, in o de o mul iply hei e ec i eness. The u h is ha he ac ual e ec i eness o he measu es can only be assessed e ospec i ely, which is in ac wha keeps pushing he VAT sys em ou o i s s eady s a e. Mo eo e , i is ob ious ha COVID-19 will ha e a e y nega i e impac on he economy and will deepen s a e budge de ici s. Nowadays, ax e ade s ha e mo e oppo uni ies o auds, as ac i i ies o Tax Adminis a ions ela ed o con ol mechanisms a e limi ed. The EU should uni e and ag ee on ools in i s igh agains ax e asion ha could help dec ease he all in ax e enues and encou age sus ainabili y o public budge s. The u u e esea ch o he au ho s could be ocused on he e ec o COVID-19 on ax e enues and occu ence o he VAT e asion wi hin he EU. 7. Conclusions Since public adminis a ion sys ems can unc ion p ope ly only i hey a e capable o collec ing axes, i is o pa amoun in e es o ha e mechanisms in place ha will e ec i ely es ain oom o ax aud. This speci ically conce ns he alue added ax, which is by na u e a e y popula ins umen among law o ende s. Coun ies ha ha e expe ience wi h his kind o law iola ion a e o ced o adjus hei legisla ion in o de o cu ail such exploi a ion o he legal sys em, al hough he ex en o unc ionali y o he changes is no easy o iden i y in ad ance, o e en gua an ee, gi en he slyness o hose who pa icipa e in he shadow economy. The legal adjus men s should he e o e be subjec o analysis, no only be o e, bu also a e being pu in o use, o see i hey uly ac as a de e en . This pape seized he oppo uni y o do so in he case o he Czech Republic and Slo akia because coppe expo om one coun y o ano he is known o ha e been abused by ax c iminals in he pas , and also because hose ades showed a sudden and s eep d op in hei his o ical de elopmen , coinciden ally a ound he ime when he coun ies we e eadying o launch new legisla i e measu es o igh ax e asion. This is mainly he eason why he analysis was pe o med in he pape , since i is e y emp ing o link unad isedly an ab up change in a ime se ies de elopmen o a newly appea ing Sus ainabili y 2020,12, 4925 20 o 25 ac o —a legisla i e measu e, which a e in his case he VAT con ol s a emen and e e se cha ge mechanism. The e a e wo p oblems when such a link is has ily es ablished. Fi s ly, i canno be uled ou ha he ime se ies de elopmen , co e ing he ime pe iod bo h be o e and a e he d op, emained na u al because o he cha ac e o all he economic ac o s ha no mally a ec i . These ac o s would no ha e included he legisla i e measu es, and hey would no ha e changed undamen ally hei own beha iou . Simply pu , i could su ice o u ilize he economic ac o s alone and hei na u al cha ac e , adically unchanged, o explain he de elopmen o he coppe ades no ma e how d ama ic i seemed o be. Secondly, e en i he e is a suspicion ha ci cums ances changed adically, i is no immedia ely ob ious and gua an eed ha i mus ha e been he legisla i e o go e nmen measu e ha caused he s eep decline in he coppe ades. I could ha e been one o he economic ac o s. These a e wo s ong easons why he phenomenon should be analysed in g ea e de ail. The pape analysed he p oblem, using he heo y o in e en ion ime se ies models and a b eakdown o undamen al ac o s ha ha e he po en ial o change adically he his o ical de elopmen o ading habi s. An in e en ion model conside s he idea ha he obse ed se ies migh ha e ollowed a pa e n o a ce ain poin in ime, which aises suspicion because i is a poin o ab up change in he se ies, and hen s a ed o shi , e en ually ending up ollowing he same pa e n on ano he le el. In o de o he model o be mo e able o copy such shi s, a special a iable is inse ed in i s equa ion. Subsequen ly, he signi icance o he coe icien belonging o he a iable is es ed s a is ically, i.e., i is es ed whe he he coe icien is ze o o no . I i u ns ou o be ze o, i is concluded ha he se ies had con inued o ollow he same pa e n a e he ime poin in ques ion. Since no change in i s cha ac e ook place, i is assumed ha no in e en ion was p esen , as he special a iable ac s as a swi ch ha e lec s in e e ence. In o de o his heo y o wo k, he model desc ibing he en i e his o y o he se ies, and con aining he special a iable, mus pass se e al checks in he i s place. These checks es ablish i s c edibili y. Once he c edibili y is es ablished, i is assumed ha he model desc ibes well enough he mechanisms go e ning he de elopmen o he se ies. Wha hen emains is o check, as men ioned, whe he he special a iable is also necessa y o such desc ip ion. In his ega d, mo e han a hund ed ime se ies models we e ied in he analysis. Th ee o he models passed he checks s ongly, while wo o hem also did no allow he special a iable o be emo ed. One model was inconclusi e in his ega d. This is a sound sugges ion ha an ab up change in he cha ac e o he se ies migh ha e aken place. Since he esul s o he s a is ical analysis we e clea ly mo e inclined owa ds he conclusion ha some hing ab up did happen in he beha iou al cha ac e o he se ies, he au ho s ook up he ask o de ec ing wha had caused his change. We analysed an en i e g oup o ac o s in ol ing majo economic o ces, da a on coppe expo om o he coun ies and he legisla i e measu es adop ed by he wo coun ies o de e c iminals om ading in coppe , i he e we e any. Looking a he o icial da a om s a is ical o ices and in e na ionally ecognized agencies, he e is no meaning in linking he undamen al economic ac o s, such as coppe p ices, coppe p oduc ion, g oss na ional p oduc s o exchange a es, o he all ha he coppe expo om he Czech Republic o Slo akia suddenly and pe manen ly expe ienced a he beginning o 2013. No is i possible o say, based on he da a, ha o he coun ies ac ed as a eplacemen o he Czech Republic, when i comes o expo ing coppe o Slo akia, o ha he Czech coppe expo changed di ec ion. The au ho s conclude ha he only a ional explana ion behind he sudden and p onounced d op in he coppe expo s can be ound in he wo coun ies’ igh agains ax e asion and hei co esponding legisla i e measu es. The da a no only sugges ha hese measu es seem o be unc ioning, bu also e eal ha he coppe ading be ween he wo s a es was p obably no mean o be eal o a g ea ex en . Al hough he esul s may no seem oo su p ising o some, hey a e da a-d i en a mo e han simila s udies. Since he analysed legisla i e measu es ha e he po en ial o be o alue, i is also wo h discussing how much and in wha o m he Eu opean Union bene i s om hem. The au ho s p o ided ha discussion in he la e pa s o he ex , poin ing ou ha he cu en ax sys em is no se up in Sus ainabili y 2020,12, 4925 21 o 25 such a way so as o u ilize he measu es su icien ly, and needs o be imp o ed. We also men ioned he ad an ages and disad an ages o o he measu es in oduced in o he Membe S a es, in pa icula he p oposed de ini i e VAT sys em o in acommuni y B2B ansac ions. Au ho Con ibu ions: Concep ualiza ion, K.K.; me hodology, F.T.; so wa e, F.T.; alida ion, K.K and F.T.; o mal analysis, F.T.; in es iga ion, K.K.; esou ces, K.K.; da a cu a ion, F.T.; w i ing—o iginal d a p epa a ion, K.K. and F.T.; w i ing— e iew and edi ing, K.K. and F.T.; isualiza ion, K.K. and F.T.; supe ision, K.K. and F.T.; p ojec adminis a ion, K.K. and F.T.; unding acquisi ion, K.K. and F.T. All au ho s ha e ead and ag eed o he published e sion o he manusc ip . Funding: This esea ch was unded by VSB—Technical Uni e si y o Os a a, g an numbe SGS SP2020/10 and SP2020/51. Con lic s o In e es : The au ho s decla e no con lic o in e es . The unde s had no ole in he design o he s udy; in he collec ion, analyses, o in e p e a ion o da a; in he w i ing o he manusc ip , o in he decision o publish he esul s. Re e ences 1. Salanié, B. The Economic o Taxa ion, 1s ed.; MIT P ess: Camb idge, UK, 2003. 2. Sch a zens alle , M. Sus ainable ax policy: Concep s and indica o s beyond he ax a io. 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