Taxes
12 October 2016

Starting in December: Proving the origin of assets

An act on proving the origin of assets has passed through the legislative process (321/2016 Coll.) The Senate made the original proposal even stricter by lowering the threshold for proving the origin of income to CZK 5 million. The Chamber of Tax Advisors has repeatedly criticised the act.

Ladislav Malůšek
Iva Špačková

Starting from 1 December 2016, tax administrators will have the power to call upon taxpayers to prove the origin of their income and other facts relating to increases in their assets, consumption or other expenditures. The precondition for such a call is the tax administrator’s reasonable doubt whether the taxpayer’s reported or asserted income corresponds to the increase in their assets or consumption. To justify the call, the difference between the reported income and the non-corresponding expenditure must amount to at least CZK 5 million, according to the preliminary opinion of the tax administrator.

Taxpayers’ failing to conclusively prove the origin of their income will trigger a “special” tax determination mechanism. The tax administrator will assess additional tax on the income estimated based on selected indicators (such as a comparison against comparable taxpayers, transactions in bank accounts, etc.). At the same time, the taxpayer will be liable to a penalty of 50 or even 100% of the additionally assessed tax. Should the selected indicators not suffice to additionally assess tax, the tax administrator may call upon taxpayers to declare their assets.

According to the professional public, namely the representatives of the Chamber of Tax Advisors, the act has numerous deficiencies already pointed out during the comment procedure. In the chamber’s opinion, the new legislation gives tax administrators an extremely powerful tool to also check the legality of taxpayers’ other income apart from the income given in the tax return. Moreover, the act allows going further back into the past, when taxpayers were not required to keep records of such income and had neither the need nor the duty to save documentation. The tool may also result in tax administrators investigating taxpayers who have been turned in by the public – including begrudging neighbours or competitors.

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