April 2023

Act No. 40/2009 Coll., Criminal Code, as amended ("Czech Criminal Code") defines tax fraud offence in two cases.

1. Tax evasion: Anyone who substantially (meaning in the amount exceeding of 100,000 CZK (approx. EUR 4,000)) evades tax or other compulsory payments or extorts an advantage on this compulsory payments, shall be punished by imprisonment for six months to three years or by prohibition of activity.
2. Failure to pay tax or other compulsory payment as a tax payer on behalf of other person: Anyone who substantially (meaning in the amount exceeding CZK 100,000 (approx. EUR 4,000)) fails to fulfil his/her legal obligation as an employer or a tax payer to pay tax on behalf of an employee or other person shall be punished by imprisonment for up to three years or prohibition of activity.

The penalties may be increased depending on the amount of unpaid tax or in case that the fraud was committed with at least two other people.

In order to qualify for a tax fraud, the act should be intentional, where the intent can be proven either by direct or indirect evidence (i.e., where a person is aware that he or she may violate or jeopardize the values protected by the Czech Criminal Code and understands this).

Generally it is the amount of tax underpayment.

The unpaid tax or similar payments exceed the amount of CZK 100,000 (approx. EUR 4,000); and there is an intention, whereas the intention includes:

1. intention to violate or endanger, in a manner specified under criminal law, any interest protected by law (i.e. the proper collection of taxes); or
2. knowledge that a conduct may cause such violation or endangering, and in the case the offender caused it, he/she was consentient with it (i.e., conscious recklessness).

Thus, an amount of tax adjustment exceeding CZK 100,000 may trigger criminal proceedings.

The tax penalties themselves do not impact the criminal liability and should not trigger criminal proceedings.

In respect of tax-related criminal offences, the criminal liability applies only if the criminal offence was committed intentionally. The intention includes:

1. intention to violate or endanger, in a manner specified under criminal law, any interest protected by law (i.e., intention not to pay taxes); or
2. knowledge that a conduct may cause such violation or endangering, and in the case the offender caused it, he/she was consentient with it (i.e., gross negligence).

In other words, conscious recklessness may be considered as an intention as well.

Voluntary filing of an amended tax return and full payment of applicable tax will exclude criminal liability provided that the amended tax return is submitted before the tax authorities open a tax audit or the police initiate criminal proceedings and provided that the tax is settled.

In case of some tax related criminal offences (offences where the tax is declared but, however, not paid), criminal liability ceases to exist if the offender pays the tax amount due in full before the court of first instance begins to pronounce the judgment.

Yes, full payment of tax is required in order to exclude criminal liability.

Criminal proceedings are initiated by a police authority (this may also include customs authorities in specific cases) if there is a reasonable basis that a criminal offence has been committed. If the results of the investigation phase justify bringing the accused to trial, the public prosecutor will file the bill of indictment with the court.

Please note that a classification of specific crime offences in the bill of indictment may be changed by the public prosecutor (the accusation party) compared to the classification in the original charges brought by the police authorities.

Under Czech law, the tax administrator is legally obliged to notify the public prosecutor or the police authorities if, in the course of its activities, it discovers facts indicating that a criminal offence has been committed. If the public prosecutor agrees, he will file the bill of indictment with the court.

The statute of limitation period relating to criminal tax offences under the Czech Criminal Code is in the range of five to 15 years, depending on the extent of the offence and the particular circumstances (e.g., higher monetary damage, crime committed in an organised group).

In respect of the statute of limitation for tax assessment (i.e., the period within which the tax authorities may initiate a tax audit and assess the tax), the general statute of limitations period is three years following the deadline for submission of the tax return. This three-year long period may be extended (e.g., if an amended tax return is submitted, an audit initiated), however, it cannot exceed 10 years. The only exception is a case where the court issues a final decision confirming that a tax fraud was committed. In that case, the tax authorities may assess the tax by the year following the year in which the final court decisions became effective.

The statute of limitation period (for criminal offences) may vary depending on the type of particular tax offence, but generally starts to run with a failure to declare and pay the tax by the statutory deadline.

For the tax assessment of the tax authorities, the statute of limitation starts to run from the deadline for submission of the tax return.

The following consequences are applicable in case the court finds the offender guilty:

1. Individuals

The offender may face a sentence of six months to 10 years of imprisonment, depending on the extent and the circumstances (e.g., higher monetary damage, committed in an organised group).

Moreover, under certain conditions, the following penalties (among others), either separately or along with the imprisonment, may be imposed:

1. monetary penalty up to CZK 36,500,000 (approx. EUR 1,500,000);
2. confiscation of an asset – if that particular asset was obtained by the offence or as a reward for such an act;
3. forfeiture of property;
4. prohibition to undertake business activities from one to 10 years – if the offender committed the offence in relation to the particular activity;
5. house arrest; and
6. community service.

2. Legal persons

The following penalties may be imposed on a legal person:

1. dissolution of the legal person – only in extreme cases;
2. suspension of its activities, performance of public contracts, participation in concession proceedings and public tenders or prohibition of subsidies acceptance, all in the range from one to 20 years;
3. monetary penalty up to CZK 1,460,000,000 (approx. EUR 60,000,000);
4. forfeiture of property;
5. publication of the judgment in the media.

Yes.

According to Act No. 418/2011 Coll., a legal person shall be exempt from criminal liability if it has made all the efforts that could be reasonably required to prevent the commission of the criminal offence by the members of the statutory body, management or other employees.

Having a compliance program may fulfil the condition of making all the efforts that could be reasonably required. However the extent of "all the efforts that could be reasonably required" is crucial as not every compliance program ensure the mitigation of criminal liability. Ineffective compliance programs are not sufficient.

Yes, self-disclosure exists in the Czech Republic, it is done by voluntary filing of an amended tax return.

As described in question 5 above, the voluntary self-disclosure can exclude criminal liability. Moreover, self-disclosure will also result in avoidance of a 20% administrative penalty on the amount of the assessed tax (or 1% penalty on the amount of decreased tax loss), which would be imposed should the tax administrator additionally assess a tax on its own initiative (i.e., when the tax administrator discovers an irregularity based its own audit activity).

The criminal liability for tax offences may cease to exist if the offender pays the tax amount due (please refer to question 5).

A legal person may be exonerated from a criminal liability provided that it has made all the efforts that could be reasonably required of it to prevent the commission of the criminal offence (please refer also to question 10),

There is no first-time offender rule in the Czech Republic, however, this fact may be considered as a mitigating circumstance when determining the sentence.

Yes, while a criminal prosecution for a tax offence is pending, the statute of limitation period for the tax assessment is suspended and will continue only after such prosecution is concluded.

Moreover, provided that there is a final court decision confirming that a tax fraud was committed, the tax authority can assess the tax until the end of the second year following the year in which the court's decision became effective, regardless of whether the period for the tax assessment has already expired.

Yes.

The criminal proceeding and potential conviction do not deprive the tax authorities to asses and collect underpaid taxes given that tax proceeding and criminal proceeding are two separate proceedings independent on each other.

Yes, it is possible to reach a criminal settlement with the correspondent authorities.

Under Czech law, the tax administrator is legally obliged to notify the public prosecutor or the police authorities if, in the course of its activities, it discovers facts indicating that a criminal offence has been committed.

In case of criminal settlement, it is possible to reach such settlement with the public prosecutor in order to reduce the penalties to be imposed. The settlement has to be approved by the court and the offender must recognize that he/she committed the act which gave rise to the prosecution.

Within the administrative proceedings, the taxpayer may also apply for a waiver of penalties and/or late payment interest to the tax administrator, provided that the tax due has been paid. However, such remission is entirely at the discretion of the tax administrator and will not be granted if the taxpayer has grossly violated tax or accounting regulations in the last three years (e.g., unreliable VAT payer, perpetrator of tax-related crime).

Both the individuals (i.e., natural person) and the companies (i.e., legal person) can be prosecuted if they perpetrate a criminal act. A legal person perpetrates a criminal offence if it is perpetrated by:

1. its statutory body or its member, or another person who is authorized to act on behalf of the legal person;
2. a person having a control or management function, provided it is not the person mentioned above in par. a) (e.g., member of supervisory board);
3. a person exercising major influence on the corporate entity’s management, provided that his/her action was one of the conditions of the origination of a consequence leading to criminal liability of the legal person (e.g., person authorized with the entity’s business management); or
4. an employee or another person in a similar position while fulfilling its employee’s duties, provided it is not any of the persons mentioned above,

provided that the above individual(s) committed the criminal offence in the interest of the company or in the course of its business activity.

Moreover, the concept of criminal liability is based on the principle of attribution of acts of individuals to the legal person. Acts taken by bodies of the legal person or the persons mentioned under letters (a) to (c) above are attributed to the legal person, irrespective of whether the specific person who committed the illegal act can be identified or not.

If a criminal offence is committed by an employee, it can be attributed to the legal person, if the offence was committed:

1. on the basis of a decision, approval or instruction issued by the corporate’s authority or by any other qualified person; or
2. due to absence of such measures adopted by qualified persons that they were legally bound to adopt, or which might have been reasonably expected from them. In particular, if the qualified persons have not performed obligatory or necessary supervisory control over the activities of employees or other subordinate persons, or if they have not performed necessary measures to prevent or avert the consequences of the committed criminal offence.

Joint criminal liability of a legal person and its directors (or other responsible natural persons) taking part in a criminal offence may also be applicable.

Yes, foreign residence does not exclude the possibility of a prosecution, provided that the particular offence jeopardizes interests located in the Czech Republic (e.g., proper collection of taxes).

Generally, Company's taxes can never be claimed to individuals, even though they are being prosecuted in connection with the lack of payment of Company's taxes. The Company always remains responsible / liable for its tax liabilities.

It is difficult to assess. Although according to the available statistics, it seems that the number of registered tax fraud cases has decreased, it may be just caused by the fact that the threshold for criminal offence increased from CZK 50.000 to CZK 100.000 back in 2020.