Case law
13 December 2017

SAC confirms ‘tax inspections beyond regional borders’

Increasingly often, the financial administration has been concentrating related tax inspections into the hands of a single tax administrator. This concept, referred to as ‘delegation’, considerably simplifies the work of the tax authorities. For taxpayers, however, this means that their tax liabilities may be inspected by a tax authority from the opposite end of the country. How does this approach comply with the rules of tax procedure? The Supreme Administrative Court (SAC) recently dealt with this issue.

Jana Fuksová
Veronika Červenková

In a ‘multi-territorial’ inspection, a single tax administrator reviews mutually related transactions at various taxpayers, irrespective of the administrator’s local competence. Typically, this approach is applied when reviewing a chain of transactions on the part of the supplier as well as on the part of the customer; when uncovering complex fraudulent chains; or when carrying out a parallel inspection of transfer prices within a group of companies. In the case recently before the SAC, the tax authority in Pardubice carried out a tax inspection at a VAT payer even though it did not have local competence. The reason was the taxpayer’s suspected involvement in a fraudulent chain that this particular tax authority had already dealt with in other proceedings.

Administrative courts in both instances sanctioned this approach, referring to efficiency and efficacy of tax proceedings. In their opinion, a multi-territorial inspection was the only way to obtain a comprehensive overview of the relationships within the chain and thus to be well positioned to uncover the fraud. The courts emphasized that it would have been extremely complicated to transfer information obtained by individual local tax administrators; moreover, some procedures, typically witness interrogations, would have had to be repeated, leading to needless costs. The administrative courts thus confirmed the tax authorities’ practice that can be come across increasingly often.

This attests to the general trend of the financial administration trying to distribute tax inspections and other procedures among tax administrators across the country. The change in local competence from the formal registered address to the actual place of business was the first harbinger of this tendency.

The Specialised Financial Authority has also recently declared its intention to create industry-specialised offices across the country. It thus seems that the times when entities with registered addresses in Prague were due for a tax inspection just once in about a hundred years are finally over.

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