Proving the origin of the asset has entered into the world


After long discussions and on the basis of the government priorities in the field of fights again tax evasion, a law has appeared in the code regarding the final validity (an amendment to the income tax law to ). This law should help the national administration to make the important steps in proving the origin of the acquired asset and its possible additional taxation.

The law is valid from the 1st of December 2016 and applies to the physical as well as the legal persons. Tax residents and non-residents of the Czech Republic are the target group. The taxed non-resident has to provide what sources the income comes from. In case the sources come from within the area of the Czech Republic, they can be taxed. In case the sources come from areas outside of the Czech Republic, the tax administrator can inform the other tax administrator of the relevant resident area.

On the basis of random choice, the tax administrator can call on the taxpayer, when the tax administrator doubts the income reported in the tax returns agree with the increase in the assets (not only the increase, but the reduction of the debts too), consumption (i.e. borrowing stuff – jewellery, yachts, free use of the estate) or another expense. The call cannot be sent to anybody groundlessly. The call can be sent only in the case when the tax administrator judges, in advance, that the difference submitted by the taxpayer is higher than 5 million crowns.

The tax administrator does not call on the taxpayer in the case it is known that the facts came up in the period when the term for the setting the tax has expired. Unfortunately, the normal three-year period of limitation can be broken.

In the case of a non-satisfactory answer to the call, different resolutions can follow. In the better case, the tax assessment will follow, including the normal sanctions (penalty of 20 %). In the worst case, the tax administrator will approach the tax assessment with special tools, where the penalty can amount to 50 or 100 % according to the cooperation of the taxpayer with the tax administrator.

The most uncomfortable punishment can be a criminal charge of tax evasion. The tax administrator can demand the processing of the asset statement. It can happen in the case it is not possible to determine the state of the assets in another way and the advanced asset value exceeds 10 million crowns. In the case of non-submission or filling out the submission in a grossly distorted way, confinement for three years, a financial penalty or prohibition of the activity may occur.

Most of the court proceedings are expected in this area. The court proceedings can be excepted in the field of inadmissible retroactivity and prohibition of self-incrimination. Similarly, the ongoing court activities applying double punishment belongs to this area, which is included in another article of this newsletter.

It is necessary to appeal to the taxpayers to not underestimate the possibility of a call. It is necessary that every taxpayer consider the collection of the needed information as forthcoming proofs. It is necessary to review the information distributed by the tax administrator. The central evidence of the Czech National Bank, and the automatic exchange of information about financial sources registered on international accounts, belong among the areas of interest. The tax administrator will surely use the information from the tax controls. According to other findings already, information will be collected passed onto the tax administrators from the astute neighbours, the competition, etc.

It is perhaps the question of time, what subjects the financial administrator will choose as a test sample. Will there be some media coverage of the cases, or will this law serve as a hammer to solve competitive battles, or god forbid to solve issues between neighbours?

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