Authors: David Krch, Martina Sumerauerová, Alice Zemánková

Much has already been written in connection with the amendment to the Tax Code as of 1 January 2021, in particular the change in the method of initiating a tax audit by delivering a notice of initiation of a tax audit to a data box. However, the initiation of a tax audit is only one step in many others in a row that the tax administrator usually takes as part of its ‘search activity’. Given that the search activity is usually carried out without the taxpayer’s participation, it is often only by inspecting the file during a visit to the tax authority that the taxpayer learns what the tax administrator was interested in and decided to investigate further.

If the tax administrator comes to the conclusion that it needs to obtain more information in order to correctly determine the tax liability, it may proceed to an on-site investigation. However, an on-site investigation should not serve to comprehensively ascertain or examine taxpayers; this can only be achieved via a tax audit. During the “Covid” times, we also considered the tax administrator’s authority in the context of the massive expansion of work from home, the closure of small sole trader businesses, online children education and the shift of the centre of working life to the homes of a large part of the Czech population.

The rules for conducting on-site investigations are laid down in the Tax Code. However, there is not much knowledge that a situation may occur where an employee or an entrepreneur receives an unannounced visit from the tax authority at home. And since “chances favour only the prepared”, it is advisable to instruct your employees in this context, or to set up internal processes (guidelines) so that the company is immediately informed accordingly and the employee provides only such information that is strictly necessary and relevant to the matter under investigation.

What requirements and what powers of the tax administrator can be encountered during the on-site investigation

• The tax administrator selects the most appropriate place for the on-site investigation where it reasonably expects to find relevant evidence;
• The tax administrator does not need a search warrant or any other similar document authorising it to visit the place of investigation;
• The presence of the Police of the Czech Republic is not necessary during the on-site investigation;
• Information on the reason for the tax administrator’s presence is stated in the on-site investigation report but should also be communicated to the person by the tax administrator as part of the advice;
• The tax administrator may access land, business buildings and rooms, vehicles, dwellings, if used by the entrepreneur for business, as well as computers and information systems (software);
• The employee / entrepreneur and other persons present are obliged to provide the tax administrator with necessary assistance, to lend the documents requested and other items necessary for the on-site investigation (such as to allow samples to be taken);
• The tax administrator may record the course of the on-site investigation (to make audio and audiovisual recordings), the taxpayer has the right to make an audio recording.

And what is an appropriate response to such requests from the tax administrator? The tax administrator’s powers are not unlimited. We may therefore encounter requests made beyond the statutory scope of the on-site investigation. One of them may be an interrogation of the employee present by way of inappropriate questions instead of giving explanations on the matter/fact under investigation.

In addition, employees should be properly instructed and should request the tax administrator to provide proof of their official identity (a service card), request the presence of a manager in charge (such as an internally designated person with a deeper knowledge of the tax audit issues), as well as a request a copy of the on-site investigation report or to ask the tax administrator to enable the recording of the on-site investigation.

Both employees and entrepreneurs using their homes for business activities should be aware of their fundamental rights and obligations in relation to communicating with the tax administrator during an on-site investigation. However, we will be pleased to assist you in setting up the appropriate processes in this area and provide detailed information.