Financial administration: do you know when you might get a check from the tax office?

What is financial administration anyway?

The Financial Administration of the Czech Republic is a system of bodies responsible for the collection, administration, control and enforcement of taxes and fees. It operates under the Financial Administration Act and is also governed by the Tax Code. In practice, this means that the tax administration, as one of the key administrative bodies of the state, ensures that the state has something to live on. In other words, it is the manager of public finances.

Its activities include, among others:

• collecting taxes from citizens and companies,
• checking that taxes are correctly calculated and paid,
• issuing decisions (e.g. tax assessments),
• recovery of arrears,
• registration of tax subjects,
• providing information and interpretation in the field of taxation.

History of the financial administration: From the Inland Revenue to Digital Transformation

Although the modern tax system in the Czech Republic was established after 1989, the foundations of tax administration date back to the Austro-Hungarian Empire. Back then, there were already so-called tax offices, which had a similar function to today’s tax authorities – they supervised the collection of taxes and the correctness of their calculation.

After the establishment of the Czechoslovak Republic, tax policy and administrative structures were gradually unified. In the 1990s, the system moved closer to the model common in EU countries – regions were created and with them a new structure of tax offices. An important milestone was the introduction of the Tax Code in 2011, which replaced the old Tax Administration Act.

In recent years, the tax administration has been digitised – today, most returns can be filed online via the My Taxes portal, communicated via a data box or used to consult personal tax records.

How is the financial administration organised?

Perhaps you imagine a “lady from the tax office” checking your VAT. But the tax administration is much more than just a clerk behind a counter. It has a three-tier structure:

1. The General Financial Directorate (GFD)

The Directorate-General for Finance is the head of the system. It leads and provides methodological guidance to the other branches of the tax administration. This is where the methodologies, interpretations and coordination of the more complex cases are developed. It is based in Prague.

2. Appellate Financial Directorate (OFŘ)

The Appellate Financial Directorate is a kind of “second level” – if you appeal against a decision of the tax office, the file goes here. It checks the legality of procedures.

3. Tax authorities

The tax offices are the most familiar part that most of us come into contact with – there are tax offices all over the country. There are 14 regional ones and one special one, called the Specialized Financial Office for Large Companies.

The tax administration is not alone – it often cooperates with the customs administration, the police and the Financial Analysis Office, especially when money laundering, tax evasion or VAT fraud is suspected. Internationally, it is involved in exchanging information with tax authorities in other countries.

The specialised financial office manages the largest companies with a turnover of over CZK 2 billion or complex structures. It ensures uniform and qualified supervision.

What does the tax office do?

They say the tax office never sleeps. Although this is an exaggeration, its activities are really wide-ranging. For the average person, it most often shows up when:

• you file your tax return,
• claiming a tax refund (e.g. on a mortgage),
• or when you are asked to complete your information or are audited directly.

In addition, the tax authorities have the right to initiate a tax audit if they suspect irregularities. The inspection can be short (just a clarification) or detailed (including a visit to the accounting firm). The tax office also keeps a register of taxpayers, provides a tax identification number (TIN), invites you to correct it if it finds an error and, in the event of inaction , initiates recovery or, in extreme cases, execution.

The tax administrator: who is he and what can he afford?

The tax administrator is the official or office that manages your tax affairs on behalf of the state. This term refers to an institution, not a specific person, although a specific official will communicate with you.

The tax administrator has fairly strong powers, for example, he or she can call for proof of accounts, has the right to initiate an audit without notice, and can impose penalties for non-compliance.

But beware – the tax administrator also has obligations. For example, he must act impartially and lawfully, he has a duty of confidentiality on all data and he must not unnecessarily burden the taxpayer.

Digitisation and the My Tax Portal

In recent years, the tax administration has also moved into the online world. The My Taxes portal has been created, which allows you to keep track of your tax history, fill in and submit tax returns electronically and communicate with the authority online.

You can use a data box, a citizen’s identity or even a bank identity to log in. This way, most communication with the government can be done from your desk without having to visit the office in person.

What if you and the authority disagree?

The tax administration is not infallible. If you think there has been a mistake, you have the right to appeal, or you can object to the tax authority’s action, complain about the official or, in exceptional cases, take administrative action. It is a good idea to have someone who understands tax law on your side. Our attorney can help you formulate objections, appeals and other filings.

Practice Questions

When can the IRS audit me? At any time during the assessment period, which is usually 3 years after the return is filed. But if you don’t file a return, the deadline doesn’t open – and it runs longer.

Can the tax office check me retrospectively after several years? Yes. The standard time limit is three years, but it can be extended up to 10 years if there is a tax loss or suspected tax fraud.

What if I forget to file my return? We recommend filing as soon as possible, even if it is late. You may be fined, but voluntary payment is always better than enforcement.

What if I make a mistake on my tax return? If you discover the error yourself, you can file a supplemental return. If the authorities spot the error earlier, they will open an audit and may charge you tax and penalties.

How will I know if I have an underpayment? From the My Tax Portal or through a notice. If you don’t respond, you will receive a notice before enforcement.

The Revenue is an indispensable government body that keeps the public finances running. There is no need to fear it, but it is good to know what it can do, what it must do and when to defend yourself. A good overview will help you avoid problems – and if you run into trouble, it’s a good idea to contact a professional, such as one of our attorneys who specializes in tax issues. And remember, filing your taxes on time is always cheaper than making excuses later.

Summary

The Czech Tax Administration is responsible for collecting, administering and controlling taxes and has wide-ranging powers – from registering taxpayers to issuing rulings, to tax audits or recovering tax arrears. It is organised into three levels: the General Financial Directorate, the Appellate Financial Directorate and regional tax offices, including a Specialised Tax Office for large companies. Tax audits can come at any time during the three-year period, which can extend up to ten years. If there is a dispute, you have the right to file an appeal, objection, complaint and administrative action. Thanks to digitalisation, most matters can now be dealt with online via the My Taxes portal.