The Act on Proving the Origin of Property
The act, which introduces completely new provisions on proving the origin of property in the Income Tax Act, awaits only the signature of the president. The act will become effective on the first day of the second calendar month after its publishing in the Collection of Laws, i.e. most likely from 1 November.
Tax administrators will be entitled to request from tax payers proving the source and origin of income if there is a well-founded suspicion that the tax payer's reported income (especially in the tax returns) does not reflect the increase in property (i.e. increase in property with respect to debts), consumption or other expenses and if the expected difference is more than CZK 5,000,000.
The decisive period for assessment of the tax payers' income and their property, consumption, or other expenses will be determined by the tax administrator. Tax payers will not be obliged to prove the facts in an appeal if they are able to prove that they happened in a period barred by the statute of limitations for the purposes of tax determination. This could be questionable, because the facts could have occurred in the past when a tax payer was not obliged to archive the respective documentation. A part of proving the origin of property can be the tax administrator's appeal to make a property declaration.
If a tax payer is not able to prove the facts requested in an appeal for proving the income and the tax administrator comes to the conclusion that the tax cannot be assessed by proof and the tax assessed with the help of special instruments is higher than CZK 2,000,000, then the tax administrator assesses the tax with the help of special instruments, which is newly described in the Income Tax Act. The tax payer will be obliged to pay the fine from the assessed tax, which will be either 50 per cent or 100 per cent of the assessed tax, depending on whether the tax payer cooperates during the proceedings.
The act, when under preparation, was widely criticised by experts and consultants. It is considered a strong instrument of the tax administration for verifying the legality of income. The approved provisions are very general, and their interpretation and use in real life will undoubtedly be problematic and questionable. There are unclear issues - how far in the past a tax payer must prove the facts, the method of assessment of income, property, and consumption, the method of proving consumption or other expenses, or the issue related to prohibiting self-recrimination.
