31.05.2021 11:50
From December 1, 2016, the Act no. 321/2016 Coll., amending certain acts in connection with the origin of the ownership (hereinafter the “Act on the Origin of Assets“ or “ZPPM“) has come into effect. The new legislation introduces changes into the income tax law, but also to the Criminal Code.
Eight new provisions (§38x – §38ze) were added to the Income Tax Act introducing a new obligation for taxpayers, i.e. an obligation to prove the origins one´s assets upon request of the tax administrator. The tax administrator may make such a request if there are doubts in connection with an increase in assets in ownership as compared to the income known to the tax authorities. The trigger amount for the above discrepancy was in the end fixed at 5 million CZK, and if exceeded, the taxpayer is obliged to prove that it is:
a) properly taxed income;
b) income exempt from tax; or
c) income not subject to tax.
In case of failure to prove the origin of income, the tax administrator is entitled to require from the taxpayer an assets declaration. If the income tax from unproven income were to amount to more than 2 million CZK, the tax administrator may assess the tax payable using a special formula, and also may impose a special penalty equal to 50-100% of the assessed tax, depending on the degree of willingness to cooperate on the part of the taxpayer.
Another change concerns the crime of breach of duty to make a true declaration of property (Section 227 of the Criminal Code), which now carries a maximum sentence of imprisonment of three years instead of the previously allowable one year, and in addition to the existing alternative penalty of disqualification from a profession, there is a new option – pecuniary punishment.
Due to the hitherto absence of implementing regulations and practice one can only guess the impact the Act on the Origin of Assets will have. Notably, the burden of proof has been transferred from the administrative authority to the taxpayer. Also, a question whether certain provisions of ZPPM do not act retroactively, ie. back to the time before the Act, arises.
ZPPM will be applied by the tax authorities to tax returns for the year 2016 onward. We will continuously monitor developments in related legislation and we are ready to consult with you its impact in collaboration with reputable tax advisors.