Disguised tax inspection: SAC on the point of time of its actual commencement


The initiation of a tax inspection does not always have to be connected with a formal notification by the tax administrator, as legislation assumes. In its recent judgment, the Supreme Administrative Court (SAC) noted that a tax inspection has already been initiated once the tax administrator starts verifying facts decisive for the correct determination of tax, even in the context of their fact-finding activity.
The correct determination of the point of time of tax inspection’s initiation is crucial in tax proceedings. Although traditionally associated with a formal notification by the tax administrator, in practice, we increasingly often see situations where acts taken within the tax administrator’s fact-finding activity that precede the formal initiation of a tax inspection exceed the legal limits and fulfil the characteristics of a factual implementation of the tax inspection. Notably, a tax administrator’s fact-finding activity is intended solely to gather evidence and information about the taxpayer; on the other hand, a tax inspection is the tax administrator’s procedure to verify the facts.
The initiation of a tax inspection has significant legal consequences, as it affects the running of the period of time for assessing tax, which commences (again) from the moment of initiation of the tax inspection, irrespective of whether the tax inspection was initiated formally (by notification) or just factually by the tax administrator’s activity. The taxpayer may not even be aware of a tax inspection being factually conducted and is only informed of this once the tax inspection is formally initiated.
When calculating the period of time for assessing tax, the tax administrator takes as a starting point the time of the formal notification of the commencement of the tax inspection. However, this may make it significantly longer compared to if calculated starting from the factual commencement of the tax inspection. The distinction between the formal and actual commencement of a tax inspection is thus not a mere formalistic nuance. It may have an impact on the tax administrator's ability to assess tax at the end of the tax inspection, or even to carry out a formally initiated tax inspection at all: if the formal initiation of a tax inspection only follows a considerable time after the actual commencement, this 'second' tax inspection may even be regarded as a repeated inspection, which, however, a tax administrator may only initiate under certain circumstances.
Recent case law: the line between fact-finding activities and a factual tax inspection
The Supreme Administrative Court has recently dealt with the excess of powers in the context of fact-finding activities, i.e. the factual commencement of a tax inspection and its impact on the tax assessment, in judgment No. 6 Afs 169/2023-32 of 10 April 2025. The taxpayer argued that the tax was assessed after the end of the period for assessing tax, as that period had started to run (again) already at the time of the factual commencement of the inspection, within the fact-finding activity.
The SAC noted that the content of the fact-finding activity is the gathering of information and mapping of the terrain, without the possibility of evaluating the information or verifying it as evidence. Once the tax administrator starts verifying and ascertaining the tax base or other circumstances decisive for the correct determination of the tax, they are already in the tax inspection phase, with all its consequences for the running of the period of time for assessing tax. The SAC also held that in the case at hand, gathering information for the purpose of responding to an international request for information by a foreign tax authority does not constitute the initiation of a tax inspection; however, the subsequent international request for information addressed to the foreign tax authority aimed at obtaining more details on the facts established in the previous step must already be regarded as a factual initiation of a tax inspection. For the above reasons, the Supreme Administrative Court upheld the taxpayer's appeal, annulled the judgment of the Regional Court in Prague, returned the case to it for further proceedings.
Practical implications: impact on limitation periods and tax assessment
It follows from the conclusions of the Supreme Administrative Court that once the tax administrator exceeds the statutory scope of the fact-finding activity, they factually initiate a tax inspection. This point of time is decisive for the running of the (limitation) period for assessing the tax, irrespective of whether a formal notification of the tax inspection is subsequently made. Practice shows that such situations are not at all exceptional, especially with the increasing frequency of informal communication between taxpayers and tax administrators. In tax litigations, we have repeatedly come across cases where the tax administrator de facto initiated a tax inspection prior to its formal notification, which resulted in the tax being assessed unlawfully at the end of the tax inspection.
If you believe that something like that may have happened to you, please do not hesitate to contact us. We will be happy to assess the situation and suggest the most appropriate procedural defence.