Based on these new provisions, the tax administrator can focus randomly on a selected taxpayer with the aim of verifying, if his declared income corresponds to the increase in his assets. In other words, the taxpayer states his assets in his tax declaration for a certain period, and the tax administrator examines, if these means can be sufficient for the increase in his consumption, assets or other expenditure in the monitored period. In case the difference is higher than CZK 5m, the tax administrator will call on the taxpayer to prove his income.

The amendment is not long, but in terms of its interpretation is it rather complicated and the application of these procedures in practice may be associated with a number of ambiguities. We have tried to summarise the basic procedures into the form of an attached presentation, which you will find on the link HERE.

If the taxpayer fails to respond to the summons from the tax administrator in a satisfactory way, the proceeding may continue further with various possible conclusions. In the best case, an additional tax including regular sanctions may be assessed for the taxpayer. In a worse case, the tax may be determined by a so-called special tax determination mechanism using special indicators, with a higher penalty rate. This rate derives from the level of cooperation of the taxpayer with the tax administrator, reaching 50 % or 100 %. The most negative result is the possibility of being accused from the criminal act of tax evasion. The tax administrator may also demand that the taxpayer declare his assets for these purposes. If the taxpayer fails to submit or grossly distorts the data stated therein, this action will also be considered a criminal act.

Unfortunately, it may also happen that within these new procedures, the basic three-year limitation period may be breached, which is otherwise set in the tax proceeding for tax assessment. 

The issue of inadmissible retroactivity (retroactive operation of a legislative act) or prohibition against self-incrimination are some of the examples of serious issues, the discussion of which we may expect in future court proceedings in connection with the amendment adopted. A similar problem may be the double jeopardy prohibition, in case a penalty were imposed on the taxpayer and at the same time he were to be accused of the criminal act of tax evasion.

The taxpayer may base his investigation on various sources of information. The newly used sources will certainly also include automatic exchange on information about the financial means of the taxpayer registered in foreign bank accounts, and possibly also the information obtained within the newly Central Registry of Accounts at the Czech National Bank.

Unfortunately, this issue, if underestimated, may result in very negative effects, and it is therefore advisable to pay increased attention to it. We consider the collection of substantive evidence, its proper evaluation and suitable formulation of the response of taxpayers in reaction to summons received from the tax administrator to be a necessary condition for success in a tax proceeding.

If you are interested in a consultation on this subject matter, you can contact our specialists, Ms Edita Ševcovicová or Mr Milan Kolář.