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Not only the questions mentioned in the title, I will try to answer briefly in this article. Anyone doing business in the Czech Republic must prepare for state control of their business activities. At ARROWS, we have long been involved in representing clients in control proceedings (or in follow-up administrative proceedings or administrative actions). We have specialists in specific areas of tax control, financial control (especially subsidy compliance) or labour inspection, as well as other areas where entrepreneurs are at real risk of control. Apart from the already mentioned labour inspectorates, tax authorities and the Ministry of Finance in the context of financial control, which are these?
In purely statistical terms, these are mainly the Czech Trade Inspection Authority (CTIA), trade licensing authorities and the Czech Social Security Administration, whose inspections affect all entrepreneurs across the board. In the area of the Consumer Protection Act alone, the CTIA carried out 16,327 inspections in 2020, and in 34.5% of the inspections carried out, it identified misconduct on the part of the inspected entity. On average, the CTIA finds misconduct in approximately 40% of cases.
It also depends, of course, on the specific area of business. Do you sell electrical appliances? Prepare for a possible inspection by the Czech Environmental Inspectorate (ČIŽP). Do you sell food or run a restaurant or bar? Prepare for an inspection by the State Agricultural and Food Inspection Authority (SZPI) or a hygiene station. Do you trade in energy? You can expect an inspection by the Energy Regulatory Office. This could go on practically forever, each area of business is under the responsibility of a specific administrative authority. Their procedures and the amount of any penalties vary, but one thing remains common. If they identify a problem during an inspection, expect a subsequent administrative procedure where a penalty will be decided. There is also a certain intersection in the fact that the basic regulation governing the inspection procedure is the Inspection Code. However, this serves only as a basic and supporting regulation, while the laws governing individual areas contain partial specifics and usually extend the possibilities and powers of the inspection body beyond the scope of the inspection rules. Did you know, for example, that SZPI inspectors can relatively newly use a concealed identity during an inspection and therefore you will not even know that you are dealing with an inspector (or you will only find out later from the inspection report)?
In inspections, you may encounter a number of administrative authorities, the list of which is almost endless. Practically every business sector has its own inspection body.
As practice shows us, each inspected area has its own specifics and each authority conducts inspections in its own way (including regional specifics). After all, the scope of competence and possibilities of action of the CTIA alone are defined by more than four dozen regulations from various areas. In terms of subject matter, the CTIA focuses primarily on consumer protection, conformity assessment, but also pyrotechnics, advertising, product safety, fuels, as well as control of compliance with directly applicable EU regulations.
The answer is simple, if an entrepreneur wants to protect his business and avoid a fine, he must be as cautious as possible when carrying out an inspection. The first thing to remember is that the inspection itself will not decide whether to impose a sanction (usually a fine). The inspection merely determines whether the activity being inspected is being carried out in accordance with the regulations. The inspection may lead to the imposition of an orderly fine if the inspected entity does not provide the necessary cooperation (does not respond to the administrative authority's requests, does not provide the requested documents, does not comply with the imposed measures, etc.). The administrative authority can thus enforce your cooperation quite easily. In the course of an inspection, the inspection body will also often impose a measure to temporarily remedy the defective situation.
As such, the inspection serves to establish the factual and legal situation, which will be used as evidence in separate offence proceedings if misconduct is found. It is only in the misdemeanour proceedings that (with the exception mentioned above) a sanction may be imposed on the initially inspected entity and the inspection report may be used as essential evidence in this respect. Therefore, care must be taken to ensure that the conclusions of the inspection body are as favourable as possible to the inspected entity.
For example, the Consumer Protection Act allows the CTIA to impose a sanction of up to CZK 50,000,000 (for the less serious offences). In the context of legal obligations of entrepreneurs, this is not an exceptional upper limit of the fine. It is worth noting that the imposition of the maximum amount of the sanction by the administrative authorities is quite exceptional. However, if the upper limit of the fine is set so broadly, this leaves the administrative authority with a rather wide margin of manoeuvre. Although the amount of the fine should not be liquidating according to case law, this does not mean that it cannot 'hurt' the entrepreneur.
Now you know why you should be cautious in your dealings with enforcement authorities. In the next part of this article, I will follow up with how an inspection is framed and what to do when it is initiated.