Seizure orders by the financial administration

Background
The topic of the seizure orders by the financial administration was discussed intensively in the last months in the Czech Republic both by experts and in the public. In essence, it involves the provision of § 167 of law no. 280/2009 Coll., (“Tax Procedure Code”), which gives the right to the financial administration, under certain conditions, to issue a so-called seizure order.

The purpose of the seizure order is to fight tax evasion and in the form of facilitating receipt of the expected tax in advance. Although, according to the legislative concept, the seizure order should only be used as an ultima ratio, they were regularly applied in practice and are de facto misused. In individual cases, the companies affected by this measure fall into insolvency.

In the meantime, several cases were even heard before the highest Czech administrative court and it lifted some of the seizure orders that were granted because they were illegal and the affected companies have been awarded compensation for damages. The explicit objection was that the Czech tax administration has used this measure in practice more frequently than on average and prematurely.

Seizure order in practice
The seizure order allows the tax administration to collect taxes, which are not yet due or not yet determined, where the tax administration assumes that these will be determined and collected in the future. The seizure order can always be issued if it is feared that the tax debtor cannot, or does not want to, pay the determined tax amount.

Upon the issuance of the seizure order, the taxpayer is then obliged to transfer the tax amount specified (in advance) within three working days to the custody account of the tax administration (sometimes even earlier), where this is secured. It is of course possible to raise objections against the decision, but this has no suspensive effect.

Requirements for the issuance of the seizure order
According to the current case law, there are basically two requirements for the issuance of a seizure order, namely justified concern (appropriate probability) (i) of the future determination of the tax and (ii) the lower probability of the collectability of the tax over the course of time. This should be justified in detail by the financial administration in their decision and in consideration of the circumstances of the individual case.

The future tax assessment concerns either (i) not yet due, but already determined tax or (ii) not yet determined tax. The lower probability of the collectability of the tax must always be assessed individually, which can involve, inter alia, the following situations which can justify the suspicion of the financial administration: Liquidation of the legal entity, the legal entity is not at the registered office and its actual registered office is unknown, unusual business transactions with extremely disadvantageous conditions for the taxpayer or the use of third-party bank accounts for business activities.

Author: Filip Turčáni