We can look up the basic data about any business corporation in public registers. The minimum data that must be available also include the registered office of the corporation.

According to the stipulation of article 136 of the Civil Code, the registered office of a business corporation is determined upon its foundation. It is common practice, though, for companies to register offices in public registers, where they do not perform any economic activity, where the management of the company or its employees are not present (or only very sporadically), where there is no material equipment etc. There are several reasons for this. A production company may be interested in having its seat registered in more representative premises, a beginning IT company does not need its own premises, because partners perform the work from home, or a commercial agent, who has founded a company for his activities and regularly travels around the world due to his activities, does not need an office. There are other reasons, though, too, which are tax-motivated.

The registered office is greatly used especially in the code of tax procedures and the value added tax act. According to the stipulation of article 13 of the code of tax procedures, the determination of local belonging (that is which tax administrator will manage the tax matters of a company) depends on the office registered in a public register. In the stipulation of article 4, the value added tax works with the term “head office” („skutečné sídlo“), which, however, means “the place, where essential decisions are adopted regarding the management of a taxable person, or the place, where its management meets”. While the code of tax procedures takes over the registered office from a public register, which a business corporation determines upon its foundation, the VAT act focuses on the actual head office, that is a seat, where decisions are made about the operation and future of a company, a seat, from which it is managed etc. 

From the perspective of the tax administrator, having a head office that differs from the office registered in a public register is considered suspicious. The tax administrator usually views this as an endeavour of the taxpayer to “relocate” to large cities, in order to reduce the frequency or even to avoid potential tax audit and to get out of more attentive sight of the tax administrator. It is a public secret that in selected towns or municipal districts, the staffing of tax administrators is not sufficient for more regular tax audits.

The significance of the institute of a head office increased, when it was incorporated into the VAT act as well, and the use of this term was thus unified and cases were eliminated, in which a subject could theoretically have different addresses for different stipulations of the law. The taxpayer must announce his head office using a prescribed form. If the taxpayer fails to fulfil this duty, the tax administrator may impose a fine of up to CZK 500,000, or the subject may be called an unreliable payer and his registration for VAT may possibly be cancelled.

According to the statistics of Bisnode Česká republika, a.s. (see http://www.bisnode.cz/tiskove-zpravy/virtualni-adresy-jsou-lihne-nespolehlivych-platcu-dph/), unreliable payers include a large number of companies, which have their seat registered at so-called virtual addresses, where they only receive mail and perform no activity. In the case of such taxpayers, the tax administrator has a more difficult position for enforcing the fulfilment of tax liabilities. The possibility of incorrect application of taxes has made the tax administrator focus more on companies residing at virtual addresses. Based on the above-mentioned, there is a well-founded fear of incorrectly paid or completely unpaid VAT. Under pain of the above-mentioned sanctions, the tax administrator demands the stating of their head office from all newly emerging taxpayers and the reporting of their head office in the case of existing taxpayers.

As mentioned above already, the issue of the head office relates mainly to two tax-related areas. We have already discussed the first area somewhat, the determination of local belonging. It depends on the address of the office of the company registered in a public register and the tax liabilities are thus managed by the tax administrator, on whose territory the registered office of the taxpayer is located. The code of tax procedures also knows tools, though, based on which the liability can also be managed by a non-local tax administrator.

These tools are delegation and request. In the case of delegation, local belonging is transferred to a different tax administrator, in case such a move is purposeful. Delegation may be requested by the taxpayer or the tax administrator may carry it out on his own initiative. In the case of request, local belonging is not transferred, but the tax administrator only asks another administrator to carry out selected acts within tax administration.

With regard to the gradual announcing of head offices, the financial administrator has proceeded to “cleaning-out” overburdened tax offices and delegating local belonging of tax subjects to the place of their actual head office. Since, due to an amendment from the year 2015, it is not possible to appeal against a decision on delegation of local belonging, this tool has become an efficient means for relieving some tax offices.

Another area, which the issue of a head office relates to, is the determination of the place of fulfilment for VAT (that is, in a simplified way, where VAT will be paid). According to the basic rule for services, the place of performance is set in the place where the recipient of the service has his registered office. A problem arises in the case that the recipient of the service has his head office in a different country than the registered office recorded in a public register. A typical example may be a subsidiary of a German company, which is managed from the German headquarters. The head office, which is relevant for determining the place of performance, will thus not be in this country but in Germany. The provider of the service cannot find out this information from a public register, though, or from the register of VAT payers, because according to the Civil Code, both registers state the registered office. The supplier thus cannot but verify the information about the actual head office with the clients himself.

In connection with the endeavour of the Financial Administration to fight tax evasions, the Legislative council of the government approved a draft bill in December 2015 with arrangements against tax evasions, which introduce some important new points. The commentary of the Legislative council of the government regarding this draft bill has been published on the website of the Government of the Czech Republic.

The document has two crucial parts, which are intended to ensure a more efficient position of the bodies of the financial administration in the fight against tax evasions. One of the points is the endeavour to reduce local belonging when carrying out tax audits, which is intended improve the use of free personnel capacities of the tax administrators and to distribute control processes in tax administration more evenly (for the draft see http://www.vlada.cz/cz/ppov/lrv/tiskove-zpravy/legislativni-rada-vlady-schvalila-navrh-zakona-s-opatrenimi-proti-danovym-unikum-a-navrh-zakona-celni-rad-138299/).

These existing and intended arrangements represent the endeavour for better tax collection and elimination of tax evasions, but on the other hand, the specifics of each taxpayer should be respected during their application and the activities of the taxpayers should not be burdened excessively. If you are interested in this subject matter or it affects you directly, we are available for consultations.