When does a Czech tax audit actually begin? The Supreme Administrative Court admits chaos in its own case law

Editorial note: this article was written before the extended chamber decided; its conclusion is not reflected here.

Imagine that the tax office assesses additional tax, you challenge it in court and find out that even the judges of the Czech Supreme Administrative Court cannot agree on when the tax audit actually began. That is exactly what happened in the case of an entrepreneur who was assessed additional VAT for 2019. The Eighth Chamber of the Supreme Administrative Court concluded that the conflicting case law of the individual chambers was so fundamental that it had to refer the matter to the extended chamber. And the outcome of that decision will affect everyone who does business and pays taxes.

The story of a tax audit that may have begun earlier than anyone thought

An entrepreneur operating in advertising, printing and leaflet distribution claimed a VAT deduction for the tax periods August and September 2019 from several supplier companies. After a tax audit, however, the Tax Office for the City of Prague concluded that the entrepreneur had not proven that the supplies had actually been received, and assessed additional tax. The Appellate Financial Directorate partly modified the decision but upheld it in essence.

The entrepreneur challenged it before the Municipal Court in Prague and then by a cassation complaint before the Supreme Administrative Court. His key argument? The time limit for assessing tax expired before the final decision was served on him. And the whole dispute revolved around one seemingly simple question: when exactly was the tax audit commenced?

The entrepreneur argued that the tax administrator had in fact — i.e. materially — commenced the tax audit as early as January 2020, when it sent Komerční banka a request for information about his bank account. Moreover, the tax administrator had previously been examining a company linked to him personally and through ownership, TOWN, of which he was managing director and which had its registered office at the same address. From this activity, the tax administrator could have drawn relevant information about the entrepreneur himself.

If January 2020 were regarded as the moment the tax audit commenced, the three-year time limit for assessing tax (with extension) would have expired on 21 January 2024. The decision of the Appellate Financial Directorate of 14 June 2024, served on 19 June 2024, would thus have come too late — and the entire additional assessment would have been unlawful.

The tax administrator and the defendant, on the other hand, argued that before the formal commencement of the audit they had carried out only routine search activity — checking the account balance, the number of employees and tax returns, all within statutory limits. They claimed they issued requests to third parties only after deciding to commence the audit and received information from them only after the formal commencement.

Why the Supreme Administrative Court cannot decide on its own: a map of chaotic case law

When analysing the case, the Eighth Chamber found that it could not issue a decision without contradicting one of the existing judgments of other chambers. This is no rhetorical exaggeration — it is the direct reason for referring the matter to the extended chamber under Section 17(1) of the Czech Code of Administrative Justice.

The Czech Tax Procedure Code, as in force until the end of 2020, set three cumulative conditions for commencing a tax audit: (1) an act directed at the taxpayer, (2) definition of the subject and scope of the audit and (3) actual ascertainment of the tax liability. The individual chambers of the Supreme Administrative Court, however, differ on whether all three conditions must be met or whether only some of them suffice.

Specifically:

• The Fifth and Tenth Chambers insist that all three conditions must be met simultaneously. If they are not met within a single act, the audit commences when the last one is met.
• The Sixth Chamber, on the other hand, has repeatedly held that an audit may also be materially commenced by an international request for assistance — i.e. an act not directed at the taxpayer at all. It thus in effect denied the need to meet the first condition.
• The Ninth and Tenth Chambers stated in other decisions that if the tax administrator immediately starts ascertaining the tax liability without defining the subject of the audit, it is materially conducting a tax audit — thereby relativising the second condition.
• The Third Chamber in one judgment in effect denied the very existence of the concept of a hidden tax audit, stating that it must be "clear beyond any reasonable doubt" from the tax administrator's act that its purpose is to commence an audit. In a more recent decision, however, it leaned towards the view that the statutory conditions apply only to proper commencement, not to a hidden audit.

There are also conflicts over what exactly "ascertaining the tax liability" means. The Seventh Chamber considers the evaluation of the evidence gathered to be decisive. The Sixth Chamber goes even further — an act carried out for the purpose of evaluation suffices. The Fifth Chamber, on the contrary, says that the evaluation of evidence is irrelevant to the assessment, because the tax administrator must always evaluate the documents in some way. And the Fourth Chamber argues that what matters is not the scope of the documents requested but the tax administrator's intention to examine specific doubts.

The Eighth Chamber aptly identified the core of the whole problem: there are two entirely different concepts of the "hidden" nature of a tax audit. According to the first, an audit is hidden when the tax administrator carries out audit activity without meeting the statutory conditions. According to the second, the conditions must always be met — and the hidden nature lies only in the tax administrator not formally commencing the audit (typically by not drawing up a record).

The referring chamber also pointed to another neglected problem. The Tax Procedure Code distinguishes two audit procedures — a tax audit and a procedure to remove doubts. Only a tax audit interrupts the running of the time limit for assessing tax. Existing case law, however, does not explain why exceeding search activity should automatically lead to the commencement of a tax audit rather than a procedure to remove doubts.

The Eighth Chamber also warned that the concept of a hidden tax audit may not always protect taxpayers. If the tax administrator formally commenced an audit after the time limit had expired, it could paradoxically claim that it had materially commenced it in time. The legal uncertainty thus affects both sides.

The question referred to the extended chamber is clear: From what moment can a tax audit be regarded as commenced, with the effect of interrupting the time limit for assessing tax? The answer will have a fundamental impact on thousands of ongoing and future tax proceedings. For entrepreneurs this means one thing — until the extended chamber decides, the question of the running of the preclusive time limit in connection with the material commencement of a tax audit is burdened with extraordinary legal uncertainty.

Source: Czech Supreme Administrative Court, 8 Afs 46/2025-67, resolution of 27 March 2026.