Czech Constitutional Court: the tax office may not break attorney-client privilege over legal expenses

A software company paid a law firm a flat fee for legal services and claimed the cost as a tax-deductible expense — and the Czech tax office wanted to see what exactly the lawyer had done. When both the company and the lawyer refused, citing attorney-client privilege, the tax administrator struck out the expense and assessed additional tax. The Regional Court in Plzeň and the Supreme Administrative Court sided with the tax authority: whoever fails to bear the burden of proof under Section 92(3) of the Czech Tax Procedure Code simply loses, whatever prevents them from doing so.

On 23 September 2026 the Constitutional Court reversed this. In judgment file no. IV. ÚS 925/26 it stated clearly for the first time that a lawyer's duty of confidentiality is constitutionally protected even in tax matters, and that the tax administrator cannot circumvent this protection by declaring: either you show everything, or you do not deduct the expense.

The case began with an additional assessment of corporate income tax for 2016 and 2017. The complainant — a company focused on software solutions and consulting — had a 2014 framework agreement with its law firm. It defined the services quite generally: monitoring and research of legislation, preparation of legislative proposals as required by the client, and "other services as instructed". The company submitted invoices and added, as to content, that in 2016 the firm had worked, among other things, for the platform Exekutoři proti teritorialitě (Bailiffs against territoriality).

This was not enough for the tax administrator. It objected that the amounts actually invoiced were lower than the contractual flat fee and that there were no amendments to the agreement, so some modified arrangement must have existed that nobody had submitted. Moreover, neither the general agreement nor the invoices showed what specific services were provided in which year and how they related to income. When the tax administrator asked the company and the law firm to provide more, both cited the duty of confidentiality — the lawyer adding that the client had not released him from it.

The administrative courts endorsed this approach, holding that confidentiality under the Czech Legal Profession Act does not relieve anyone of tax obligations or reduce the taxpayer's burden of proof. In other words: if you want to deduct an expense, you must prove it. That it concerns a lawyer is your problem.

Where the Constitutional Court parted ways with the Supreme Administrative Court

The Fourth Chamber, with Judge Zdeněk Kühn as judge rapporteur, held that such an approach violates the complainant's fundamental right to protection of attorney-client privilege under Article 13 and Article 37(2) of the Czech Charter of Fundamental Rights and Freedoms. Crucially, constitutional protection of confidentiality does not apply only to criminal defence. Legal advice in civil, administrative or tax law enjoys the same protection as defence in a criminal case — attorney-client privilege makes no distinction by field of law.

That does not mean, however, that merely invoking confidentiality is an automatic ticket to tax deductibility. The Constitutional Court expressly states that only confidential legal advice is protected, not all tax-relevant facts surrounding it. The client may therefore protect the content of advice, specific legal analyses, strategy and documentation — but must at the same time be able to substantiate the tax-relevant consequences of the service in another way.

This "other way" is the core of the judgment. The Constitutional Court names two specific techniques: either redacting text subject to confidentiality, i.e. securely blacking out sensitive information in documents, or a neutral description of the legal services provided without stating their substantive content. The tax administrator may not insist on complete legal documentation, the content of consultations or the tangible results of the lawyer's work beyond what is strictly necessary for the proper assessment of tax. Proportionality is the yardstick here — and in this case, according to the Constitutional Court, it was not even remotely respected.

That is what broke the case. The tax administrator did not consider milder options at all. It wanted all or nothing. Moreover, the complainant only learned from the decision of the appellate tax directorate, i.e. after the fact, that it could have proceeded otherwise than by waiving protection entirely. From the Constitutional Court's point of view, this is unacceptable — if the tax administrator is to demand evidence touching on attorney-client privilege, it must itself actively offer a more proportionate route, not put the client before the choice "break confidentiality or pay".

The Constitutional Court therefore quashed the decision of the Supreme Administrative Court and the case goes back. The Supreme Administrative Court will quash the judgment of the Regional Court in Plzeň and the decision of the appellate tax directorate, which will decide again. For 2016, with the guidance that the tax administrator never formulated serious and justified doubts about the original tax return — so the expense will probably be accepted without further evidence. For 2017, the doubts were well founded, but the complainant must be given a real opportunity to bear the burden of proof in a way that does not disproportionately interfere with attorney-client privilege.

For companies that regularly use legal services, this is a significant shift. Until now, the situation during a tax audit of legal fees was rather uncomfortable: either the client broke confidentiality (and formally released the lawyer from it), or it risked the tax administrator not recognising the expense. The Constitutional Court's judgment changes the starting point. The client has the right to keep materials protected by attorney-client privilege confidential even in tax proceedings. The tax administrator must consider milder means and cannot force full disclosure of legal advice just because the general agreement and invoices are not enough for it.

The practical impact is concrete. If your company receives a request to prove legal expenses, the answer is not "confidentiality, goodbye" — that stance has just lost before the Supreme Administrative Court. The legitimate answer is to offer what the Constitutional Court named: a neutral description of the services (type of matter, hours, area of law, period, the project or dispute to which the work related), or redacted outputs with sensitive passages blacked out, supplemented by contractual and invoicing documentation. At the same time, it is sensible for the client to make sure that framework agreements with lawyers are updated by amendments reflecting the services actually provided and the fees — the mismatch between the contractual flat fee and the invoicing was, in this case, one of the things that rightly alerted the tax administrator.

The message for lawyers is equally clear: the position of confidentiality in tax proceedings has been strengthened, but so has the responsibility to help the client assemble evidence that proves tax deductibility without going into the substance of the advice. Formulating a neutral description of services and the scope of permissible redaction will become part of routine communication with the tax authorities. Those who handle this well will save their clients additional assessments and penalties — and will not force anyone to give up the constitutionally protected confidentiality of the relationship.

Source: Czech Constitutional Court, judgment file no. IV. ÚS 925/26 of 23 September 2026; Advokátní deník, 23 September 2026.