Tax assessment—or how much it will cost you

If a tax audit concludes that you reported the incorrect amount of tax, the tax administrator will issue an additional payment assessment. This assesses the difference between what you reported and what the authority believes you should have reported.

In addition to the assessment itself, a 20% penalty on the assessed amount and interest on late payments are added. So, for larger amounts, these are significant sums.

Tax assessment in practice: 2 million plus a half-million penalty

In the case of a corporate group where the Supreme Administrative Court confirmed the abuse of rights regarding bond issuance, the tax assessment for each taxable period amounted to CZK 2,280,000, with an additional CZK 456,000 in penalties. We analyzed this case in detail in our article on tax optimization.

And that is not all. An assessment can apply to multiple taxable periods at once. If the tax administrator identifies a systemic error or a recurring practice, they will issue an assessment for each year separately. The total amount can then easily multiply the original estimate.

Distraint order: when the tax office freezes accounts overnight

An even harsher measure is the distraint order. If the tax administrator believes that it will not be possible to collect the tax from you, they may proceed to secure payment, even if the tax has not yet become due.

In practice, this means freezing accounts or seizing assets overnight. You cannot pay employees or suppliers, and you cannot manage your cash flow. A company can find itself in an existential crisis overnight. It is one of the most aggressive tools available to the tax authorities, and it often requires immediate legal action.

You can defend yourself against a tax security order by filing an appeal, but the deadlines are short and the situation requires a lawyer who knows how to act quickly.

Have you received a tax security order or a tax assessment notice?

When life gets complicated, you deserve a lawyer who will fight for you until the very end. Uncertainty is worse than bad news. We talk to you about what is happening, where we are headed, and what your options are. With us, you always know exactly what to expect.

Appealing a tax assessment notice: deadlines and procedure

You can appeal against an additional tax assessment notice. The deadline is 30 days from delivery. You address the appeal to the Appellate Financial Directorate, which will either confirm, amend, or cancel the decision.

"An appeal must be carefully prepared and include all arguments at your disposal. This is also why an appeal should always be prepared or at least reviewed by an attorney. A business owner who writes an appeal themselves and focuses on only one argument may lose the opportunity to assert five others that would have succeeded," adds attorney Petr Motyčka.

Lawsuit to the administrative court and cassation complaint to the Supreme Administrative Court

If the appeal is unsuccessful, the next step is a lawsuit filed with the administrative court. The deadline is 2 months from the delivery of the decision on the appeal. The administrative court cannot change the tax authority's decision itself. It can only overturn it and return the case for a new hearing. You can then challenge the administrative court's judgment by filing a cassation complaint to the Supreme Administrative Court.

The entire process from the start of an audit to a final court decision can realistically take several years, though it always depends on the specific case.

Tax evasion under Section 240 of the Criminal Code: when it becomes a criminal offense

Everything we have discussed so far takes place within the realm of administrative law. The tax authority assesses additional tax, you defend yourself, and the situation "ends up one way or another." Section 240 of the Criminal Code shifts the matter into the realm of criminal liability.

Evasion of taxes, fees, and similar mandatory payments is a criminal offense. And unlike tax proceedings, where the issue is whether you declared your taxes correctly, in criminal proceedings, the issue is whether you acted intentionally.

Intent: what the prosecution must prove

The keyword is intent. Criminal liability for tax evasion requires at least indirect intent. This means it is not enough to prove that you filed your taxes incorrectly. It must be proven that you knew your actions could result in tax evasion, and that you accepted this outcome. Or, in the case of direct intent, that you specifically intended for it to happen.

Negligent errors, even if they lead to a tax assessment, do not constitute a criminal offense.

• Accounting mistakes,
• misinterpretation of an unclear provision,
• omissions in a tax return...

These are matters for the tax authority to resolve, not the police.

‍What penalties apply to tax evasion

For committing the crime of evasion of taxes, fees, and similar mandatory payments under Section 240(1) of the Criminal Code, the penalty may be imprisonment for six months to three years or a ban on professional activities.

• However, if you commit the crime, for example, in collusion with at least two other people or if you evade taxes in the amount of at least CZK 1,000,000, you may be sentenced to a prison sentence of 2 to 8 years. An even stricter prison sentence of 5 to 10 years may be imposed if the criminal offense involves an amount of CZK 10,000,000 or is committed in connection with an organized group operating in multiple countries.

At what amount does tax evasion become a criminal offense

If the tax is reduced by at least CZK 100,000.

From legal optimization to tax fraud: real-world cases

Theory is one thing, but court decisions are based on precedents already established in the past. We have prepared an analysis for you on how courts have ruled in specific situations.

Fictitious invoices for advertising services as a criminal offense

A company entered into advertising service contracts. The contracts existed, invoices were issued, and the amounts were paid. However, the advertising services never actually took place. The contracts were concluded from the outset with the knowledge that their sole purpose was to claim a VAT refund.

The Supreme Court stated that such conduct constitutes the elements of the crime of tax evasion. The court emphasized that what is decisive is not the formal existence of documentation, but the actual content of the performance. If the performance did not take place, the invoice is fictitious regardless of how professional it looks.

This is a case that occurs in practice more often than one might expect. Companies enter into consulting, marketing, or advertising contracts with an affiliated entity. The service is not actually provided, or it is provided at a fraction of the invoiced value. The difference is used to create artificial expenses. And that is exactly where Section 240 of the Criminal Code comes into play.

Supreme Court Resolution file no. 7 Tdo 1084/2007 of November 21, 2007

Tax evasion by a public official: the case of the mayor and the wastewater treatment plant

Not everyone convicted of tax evasion is a business owner. In this case, it was a mayor whose actions in connection with a wastewater treatment plant project constituted a criminal offense.

The case is interesting because of what the Supreme Court had to say about it: consistently utilizing all legal options to reduce a tax liability cannot be considered a criminal offense. However, this only applies if the taxable transaction performed is a legally perfect act, rather than one that is merely simulated or invalid for other reasons.

In other words: you are allowed to optimize. You are not allowed to simulate. And if a legal act lacks genuine intent and serves exclusively to reduce a tax liability, it is merely a means to achieve that goal. Without the tax benefit, it would never have been performed. And that is a crime.

Supreme Court Resolution of March 10, 2004, case no. 7 Tdo 1301/2003

Transferring shares via a holding company: where tax optimization crossed the line into criminal activity

This is a case that directly follows up on the topic of holding structures from our first article. There, we showed that a holding company can be legitimate and that the tax authority must prove the absence of a business purpose. Here, we show what happens when a business purpose is truly lacking.

In October 2024, the Regional Court in Brno dealt with a case where the defendants transferred shares from individuals to a legal entity and subsequently had dividends paid out to themselves. The entire structure was created with the goal of avoiding personal income tax. The court found that the defendants acted intentionally and with the aim of evading tax.

The difference compared to a legitimate holding company? In a legitimate case, there are real business reasons for the transfer: centralization of management, asset protection, succession planning, or simplifying cash flow. None of that existed here. The structure was created solely to circumvent a tax liability.

Judgment of the Regional Court in Brno, Zlín branch, dated February 27, 2023, file no. 46 T 19/2021

How to defend against tax evasion charges

Criminal proceedings differ fundamentally from tax proceedings in one key respect: you have the right to remain silent. In tax proceedings, you are required to cooperate with the tax administrator. In criminal proceedings, you are not.

It often happens that a business owner, accustomed to communicating openly with the tax office, continues the same approach even after the matter shifts to a criminal level. They provide documents to the police, offer explanations, and answer questions. Yet, every answer they give becomes evidence.

Therefore, the rule is: the moment you learn that your case has a criminal dimension, stop all communication with the tax office and the police, and contact a lawyer.

When to call a criminal defense attorney

The answer is simple: immediately. Not after the initiation of criminal prosecution. Not after an interrogation. The moment you learn that your case has a criminal dimension. The time you lose by hesitating is time the opposing side gains to build their case. And statements you provide without a lawyer present cannot be retracted.

Article series: Optimization, audit, criminal liability

We have prepared a series of three articles that guide you through the entire spectrum of tax risks. From legal optimization and tax audits to criminal prosecution for tax evasion.

→ When tax optimization turns into tax fraud

→ What to do when a tax audit arrives?

→ Tax evasion, additional assessments, and potential criminal prosecution. How to defend yourself. You are currently reading

Author: Petr Motyčka

Article prepared by Petr Motyčka, an endors partner specializing in criminal law. If you are dealing with a similar situation, reach out to us at trestni@endors.cz or call us at +420 721 208 275 We respond within 24 business hours.