Understanding the “Law on the Confirmation of the Origin of Assets” (Zákon o prokazování pôvodu majetku)

The “Law on the Confirmation of the Origin of Assets” was enacted in the Czech Republic in 2016. Its introduction sparked controversy in society, as many experts viewed it as a violation of privacy rights. The document aimed to strengthen the fight against tax crimes and prevent tax evasion.

Essence of the Law on Confirmation of Asset Origin:

The law allows tax administrators to monitor an individual’s assets to determine if they align with the declared income. The Financial Administration of the Czech Republic (Finanční správa ČR) can request individuals, both physical and legal entities, to provide evidence of the origin of their property. Failure to do so may lead the tax service to presume that the property was acquired through undisclosed income. This can result in additional taxation disproportionate to the assets and consumption and a penalty ranging from 50% to 100% of the income.

While officially targeting tax evaders, corrupt politicians, and officials, the law often affects those who simply struggle to pay taxes.

Obligations and Penalty Sanctions:

A tax administrator can ask a taxpayer to prove the origin and source of income if they:

• Have reasonable doubts regarding whether the taxpayer’s declared income corresponds to the increase in their assets, consumption, or other expenses.
• Believe that the difference exceeds 5 million Czech crowns.

Subsequently, the taxpayer must provide evidence to substantiate the facts mentioned in the claim.

The Financial Administration can also demand proof of property origin if it:

• Does not correspond to the individual’s qualifications or occupation.
• Was acquired in a country with a high level of corruption.

Ideally, the taxpayer complies with the request, dispelling doubts about living beyond their means. The worst-case scenario occurs if the individual cannot refute the claim or respond to the request.

The “Law on the Confirmation of the Origin of Assets” is relatively new, and its effectiveness is not fully assessed. However, it holds the potential to be an effective tool in combating crime and dishonesty in the tax system.