Tax Optimisation and Audit Defence: Managing Corporate Tax Risk in Czechia

JUDr. Jakub Dohnal, Ph.D., LL.M.
JUDr. Jakub Dohnal, Ph.D., LL.M.
8.6.2026 | ARROWS law firm

Expert optimisation of the tax burden and professional representation during tax audits are key to managing corporate risk. In an environment of frequent changes and digitalisation, bookkeeping alone is not enough. Business owners need a partner who understands both the regulations and commercial reality. The combination of optimisation, prevention and defence with ARROWS advokátní kancelář turns tax law into a managed risk.

In the image, we see a lawyer addressing the issue of optimising the tax burden.

The tax environment in the Czech Republic: Why “just keeping good books” is no longer enough

The tax environment in the Czech Republic has in recent years been characterised by increasing complexity and pressure on tax collection, reflected not only in frequent amendments but also in ever more rigorous control mechanisms used by the Financial Administration. Entrepreneurs face a combination of traditional obligations, such as filing tax returns or keeping accounts, and newer tools.

These include, for example, VAT control statements, electronic communication via data boxes, and sophisticated analytical systems for assessing the risk profile of taxpayers. Especially for mid-sized and larger companies, this means that tax is no longer merely an “administrative necessity”, but a strategic risk that must be managed similarly to cybersecurity or compliance. The Financial Administration also relies on the principle of so-called targeted audit activity, focusing primarily on entities and situations with a higher risk of tax evasion.

Typical red flags include a long-term tax loss despite the company continuing to operate, unusual fluctuations in performance, excessive VAT refunds, or repeated issues with meeting obligations—for example late filing of returns or incomplete VAT control statements. This increases the likelihood that a company with a more complex structure, multiple income streams, or frequent transactions with related parties will sooner or later be classified among the “interesting” entities, even if it subjectively believes it is “doing everything correctly”.

A key feature of today’s environment is also the digitalisation of tax administration. Tax offices increasingly use tools to analyse large volumes of data, automatically match information from returns, VAT control statements, bank statements and other sources, and on that basis assess the likelihood of inconsistencies or fraud.

This makes it possible to identify even relatively small deviations that would previously have remained hidden in the flood of information, while also placing higher demands on the quality and consistency of companies’ internal data systems. A company that runs its tax agenda “on the edge” or relies on improvisation can very easily find itself in a position where it bears the burden of proof without adequate documentation.

Another factor that management often underestimates is the interconnection of tax law with many other areas of law. The method of financing, group structure, transfer of ownership interests, the design of employee benefits, or licence agreements—all of these have tax, corporate, employment-law and regulatory implications at the same time.

In more complex transactions, such as the sale of an ownership interest in a business corporation or shares, it is necessary to take into account not only the conditions for tax exemption—for example in the form of a holding-period time test—but also the requirements to report exempt income above a specified threshold and any cross-border aspects. Without a coordinated approach by tax and legal advisers, even formally satisfied conditions can turn into a problem if the transaction is not properly documented or reported.

Practical experience shows that many companies perceive tax issues primarily as an accounting topic handled internally or with a standard accounting firm. This may be sufficient for smaller entities with a simple structure, but for mid-sized and larger companies, corporate groups, or investors with a broader portfolio, it is a significant oversimplification of reality.

When a company is hit by a tax audit, the tax office may begin to challenge claimed deductions, transfer pricing, or exemptions, or may even initiate administrative or criminal proceedings due to suspected tax evasion. This is precisely why companies that want to grow in the long term are moving from a purely accounting approach to systematic tax planning and procedural protection, often in cooperation with attorneys specialising in tax law under Czech legislation.

Lawful tax optimisation: Where savings end and risk begins

Lawful tax optimisation is, in modern tax theory and practice, viewed as a legitimate effort by a taxpayer to structure its transactions and organisation so as to minimise its tax liability within the framework of statutory rules. Czech professional literature and practical guides agree that this involves making use of tax advantages, exemptions, deductible items and other instruments.

These are offered by the Czech legal system itself, or it involves such interpretation and application of legal rules as maximises their reach in line with their purpose and meaning. Typically, this includes choosing an appropriate legal form for doing business, setting the method of financing, strategically timing investments, or using tax losses in future periods.

Specifically for corporate income tax, a key role is played by correctly determining tax-deductible expenses, applying tax depreciation of fixed assets, and using deductible items such as expenditure on research and development or employees’ professional training.

For self-employed individuals, the choice of how to record expenses is also significant—for example deciding between actual expenses and flat-rate expenses, or entering the flat-rate tax regime if the conditions are met. The essential point is that lawful optimisation always stems from real economic activity and merely seeks the most efficient way to tax it within the limits of the law.

At the same time, it is necessary to distinguish lawful optimisation from tax evasion. Tax evasion is a situation where tax or part of it is not declared at all, is deliberately misstated, or is unlawfully reduced—for example by pretending expenses that are unrelated to business activity or by concealing income.

While optimisation is based on transparent use of lawful options, tax evasion is based on deceiving the Financial Administration, which may have not only administrative but also criminal-law consequences, for example the criminal offence of tax evasion (shortening of tax, fees and similar mandatory payments). In practice, however, the boundary between these categories is not always clear and is often the subject of disputes in tax proceedings or before the courts.

An important role is also played by the concept of so-called “abuse of law”, where the tax authority may deny a tax advantage even if all conditions have been formally met, if it concludes that the main purpose of the transaction was to obtain a tax benefit contrary to the intent of the law. This typically concerns artificial chains of transactions, transfers between related parties, or relocations of registered offices without real substance.

For entrepreneurs, this means that even perfect formal structuring is not enough if it is not supported by credible economic reality and appropriate documentation that can be presented and defended in the event of an audit.

The attorneys at ARROWS, a Prague-based law firm, therefore do not help clients in practice merely “look for loopholes in the law”, but above all structure their business so that it is tax-efficient and at the same time defensible before the Czech Financial Administration and, if necessary, before the courts. In practice, this means that they assess every optimisation strategy not only through the lens of immediate tax savings, but also in terms of the long-term risk of an audit, the sustainability of documentation, and the impact on the company’s reputation. The key is not maximum, but sensible optimisation that respects the boundary between legitimate planning and a high-risk scheme.

Typical tax optimisation tools for companies

In companies’ day-to-day practice, tax optimisation is implemented through a wide range of tools that the Czech legal system expressly allows. For legal entities, the cornerstone is working with tax-deductible expenses, where deductible expenses are considered in particular those expenditures that relate to achieving, securing and maintaining taxable income and are not expressly excluded by law.

By contrast, for example, entertainment expenses—especially hospitality, refreshments and gifts—are considered tax non-deductible under Czech law, with the exception of promotional items meeting statutory conditions (e.g., value up to CZK 500, bearing the company logo), so they cannot be deducted from the tax base even though they are recognised as an expense for accounting purposes. Distinguishing what is still tax-deductible and what already falls under entertainment is not always trivial and is among the frequent subjects of tax disputes.

A powerful optimisation tool is tax depreciation of long-term tangible and intangible assets, which makes it possible to spread the acquisition cost of an asset over multiple tax periods and thus influence the timing of the tax burden.

Entrepreneurs may choose between straight-line and accelerated depreciation, or use options related to technical improvements of assets or the suspension of depreciation in certain periods when it is advantageous for them to “defer” costs. Strategic timing of investments, typically at year-end, can in aggregate lead to significant tax savings if everything is correctly recorded in the accounts and justified by a genuine business need.

From the perspective of individuals, especially entrepreneurs and investors, an important institute is the income tax exemption for income from the sale of ownership interests and shares after meeting the holding-period time test. If an individual holds a business interest for at least five years, or shares or other securities for at least three years, the income from their sale may be exempt from income tax.

However, for shares and securities acquired after 1 January 2025, the exemption will not apply if the total income from their sale in the tax period exceeds CZK 50,000,000. In practice, this makes it possible to carry out large transactions without additional tax burden, provided all conditions are met and the income is duly and timely reported to the tax administrator if the specified threshold is exceeded.

Given that legislative changes have recently appeared in this area in connection with value thresholds and their subsequent repeal or amendments, it is essential for investors and business owners to monitor the current legal status and plan transactions well in advance.

For companies operating within groups or having transactions with related parties, a key element of tax optimisation is transfer pricing. Transfer prices, i.e., prices charged between related parties, must under Czech tax legislation correspond to the conditions that independent entities would agree under comparable circumstances.

Incorrectly set transfer prices may lead to an adjustment of the tax base by the tax administrator, additional tax assessment and penalties, and in extreme cases even criminal-law risks. In practice, it is therefore recommended to prepare transfer pricing documentation (Transfer Pricing Documentation), which describes the group structure, transactions between related parties, and the method on the basis of which the prices were determined.

The attorneys at ARROWS, a Prague-based law firm, connect the tax and legal perspectives in these situations. They help clients correctly classify expenses, set internal policies to distinguish, for example, entertainment from marketing, and design investment and depreciation plans with regard to cash flow and expected profits.

They also structure transactions involving ownership interests and shares so that they meet the conditions for exemption, and prepare transfer pricing documentation in line with the requirements of the Czech Financial Administration as well as international standards. At the same time, they point out that every optimisation also has its limits and that aggressive schemes without real economic substance are very difficult to defend today.

When optimisation becomes a problem: Typical mistakes from practice

In practice, we often encounter entrepreneurs confusing lawful tax optimisation with aggressive minimisation of tax liability at any cost. A typical example is an attempt to include in tax-deductible expenses expenditures that are more personal than business-related, or entertainment expenses disguised as marketing or business expenses.

Czech law expressly provides that entertainment expenses—especially hospitality, refreshments and gifts—are not tax-deductible, with the exception of promotional items meeting statutory conditions, even if they may be entirely rational from a business perspective.

In a dispute with the tax office, it is then often not about the existence of the expense itself, but about its classification, which the taxpayer must convincingly defend. Another common mistake is formal, but substantively unsustainable, structuring of transactions. For example, when selling an ownership interest or shares, clients sometimes try to “artificially” meet the holding-period time test or use various transfers within the group so that the income appears exempt, without the transaction having real economic justification.

In modern tax law, however, the tax administrator and the courts assess transactions not only by their form, but also by their actual substance and purpose. If they conclude that the main objective was to obtain a tax advantage contrary to the purpose of the law, they may deny the exemption and assess additional tax, often with penalties and default interest.

A specific area where lawful optimisation can easily turn into a problem is VAT and input VAT deduction claims. The right to deduct input VAT is based on the principle of tax neutrality, which means that a VAT payer is entitled to deduct input VAT if it purchases goods or services for its taxable supplies and the substantive legal requirements are met.

In practice, however, this means the need to prove that the supply of goods or services actually took place as stated on the invoice, that a tax liability arose, and that the payer actually used the purchased supply for its economic activity. If a company lacks contracts, delivery notes, correspondence, evidence of actual performance, or if the business partner shows signs of being a high-risk entity, the deduction claim may be denied and VAT additionally assessed.

Cases are also complex where a company is accused of participating in VAT fraud. In these situations, the tax administrator must prove not only that missing tax arose in the VAT system—for example, that a member of the chain failed to remit the tax—but also that the specific payer knew or could and should have known about the fraudulent nature of the transaction.

It is therefore not sufficient merely to point to non-payment of tax in the chain; it is necessary to prove fraudulent conduct and culpable participation of the taxpayer. For entrepreneurs, this means that they must not only ensure the formal correctness of invoices, but also verify their business partners and adopt reasonable measures to prevent involvement in fraudulent schemes, for example in the area of high-risk commodities.

The attorneys at ARROWS, a Prague-based law firm, encounter these situations regularly and know that the boundary between optimisation and a breach of law is often a matter of expert interpretation, not the entrepreneur’s “gut feeling”.

They help clients set rules for selecting and vetting partners, prepare contractual documentation and internal processes so that the actual course of transactions can be evidenced at any time, and in the event of a dispute they defend both the entitlement to a VAT deduction and the correctness of accounting and tax classification of individual transactions. As a result, companies can take advantage of the tax benefits offered by the Czech legal system without unnecessarily risking ending up in the grey zone of fraud or tax evasion.

Frequently asked questions: Tax optimisation

1. Is it possible to structure the sale of a company so that the income is fully tax-exempt?
Entrepreneurs often ask whether a particular step is still safe optimisation or already borders on unacceptable risk. A typical question is precisely whether it is possible to structure the sale of a company so that the income is fully exempt. However, it is not enough to meet only the formal time test; other conditions must also be met and the necessary documentation must be secured for future proof of the entitlement to the exemption. An experienced tax and legal adviser will explain not only the exemption conditions themselves, including any limitations (e.g., for shares acquired after 1 January 2025 where income exceeds CZK 50 million), but also the related procedural risks.

2. What risks are associated with tax-exempt income from the sale of a company or an ownership interest?
In addition to meeting the exemption conditions themselves, it is also necessary to consider procedural obligations. This may include, for example, the obligation to notify tax-exempt income above a specified threshold or questions from the tax office during a subsequent tax audit. The attorneys at ARROWS, a Prague-based law firm, structure transactions so that the client understands not only the tax effect but also the documentation requirements and, going forward, minimises the risk of an additional tax assessment.

3. Is it really possible to claim deductible items, such as R&D expenses or employee training?
Another common concern is whether it is possible to “really” claim certain deductible items, such as research and development expenses or employees’ professional training, and how demanding it is to prove these expenses during an audit. In practice, these expenses tend to be sensitive from the perspective of the Czech Financial Administration, because they can easily become a tool for overstating costs.

Tax audits in practice: How they work and what the authorities look for

For many entrepreneurs, a tax audit is synonymous with stress, a time burden and uncertainty. From the perspective of the Czech Tax Code, however, it is not an arbitrary intervention but a standard process aimed at verifying whether the tax base was determined correctly and the tax assessed properly.

Even before the tax audit itself, the tax office often uses the so-called procedure to remove doubts, the purpose of which is to clarify specific ambiguities in a tax return, such as unusual deductions, conspicuous fluctuations or discrepancies between the return and the VAT control statement. This procedure is less invasive than a full audit, but it still requires cooperation from the taxpayer and may foreshadow more in-depth scrutiny.

The tax audit itself is usually initiated by delivery of a notice in which the tax office specifies which tax and for which period it will audit, what documents the entrepreneur must submit and within what deadline.

The tax administrator has the right to enter business premises at a reasonable time, inspect accounting and other records, request the loan of documents and carry out other acts necessary for tax administration. At the same time, it applies that the subject of the audit are the tax obligations, the taxpayer’s assertions or other circumstances decisive for the correct determination of tax relating to one tax proceeding.

The time limit for assessing tax (the preclusive time limit) is generally three years; however, in certain cases—such as when claiming a tax loss, a tax deduction, or in connection with international cooperation in tax administration—it may be extended up to ten or fifteen years. During the audit, the entrepreneur is obliged to allow the tax administrator to carry it out, ensure a suitable place and conditions, provide the necessary information on the organisational structure and the storage of accounting records, submit evidence supporting their assertions, and not conceal evidence available to them.

At the same time, they also have significant procedural rights, such as the right to be present during acts, propose evidence in their support, inspect the file, comment on the audit results and file remedies against decisions of the tax administrator. In practice, it is crucial to exercise these rights actively and not limit oneself to passive reactions, because it is precisely during the audit that the decisive evidentiary basis is created for any appeal or court dispute.

In recent years, tax audits have focused mainly on areas with a higher risk of tax evasion. The main factors that attract the attention of the Czech Financial Administration include long-term loss-making while the business continues to operate, and significant fluctuations in taxable income and costs.

Further, excessive VAT deductions or repeated requests for refunds of an excessive deduction, and discrepancies between the declared status and data available from other sources. The reason for an audit may also be an anonymous tip or information from another authority, but today automated analyses and risk scoring play a key role, enabling audit capacity to be targeted more effectively.

The attorneys at ARROWS, a Prague-based law firm, explain to clients that a tax audit is not a one-off event but a process for which it is advisable to prepare over the long term. This includes not only careful bookkeeping and tax records, but also systematic archiving of contracts, correspondence, internal decisions and other documents that may serve as evidence in the future.

They also recommend setting internal procedures for communication with the Czech Financial Administration, designating persons responsible for providing documents, and clarifying in good time who will represent the company during the audit so that uncoordinated and inconsistent statements do not occur.

Rights and obligations of an entrepreneur during an audit

For a successful defence during a tax audit, it is essential to understand not only your obligations but also your rights. The obligation to cooperate is indeed a basic rule, but it does not mean that an entrepreneur must uncritically accept all requests of the tax administrator or waive procedural means of protection.

The Czech Tax Code expressly provides that the taxpayer is obliged to submit evidence supporting their assertions, provide necessary information, ensure a suitable place for the audit and enable communication with the relevant employees.

At the same time, the tax administrator’s requests must be proportionate and relate to the subject of the audit, so the taxpayer is not obliged, for example, to provide information that is clearly unrelated to the given tax and period.

From the perspective of rights, the ability to inspect the file, familiarise oneself with the documents on which the tax administrator relies, and comment on them is essential. The taxpayer may propose that additional evidence be taken, such as witness interviews, expert opinions or the submission of supplementary documents, and has the right to request reasonable time limits to obtain them.

If they feel that the time limit set by the tax administrator is insufficient, they may request an extension and argue the complexity of the matter, the volume of the requested documents or the need to obtain materials from third parties.

Actively exercising these rights often determines whether the audit will be conducted properly and fairly, or whether it will turn into a one-sided process leading to an additional tax assessment. Another important area is the procedure after the audit ends. The tax office is required to draw up a tax audit report or a record of audit findings, which, among other things, include an assessment of the evidence submitted and the conclusions reached by the tax administrator.

The taxpayer has the right to comment on this report or record, raise objections, point out any outstanding evidentiary motions, and highlight any inconsistencies in the reasoning.

If, despite this, additional tax is assessed by way of an additional payment assessment, the entrepreneur may file an appeal in which they specifically challenge both the factual and legal conclusions of the tax administrator and propose that they be changed. If the appeal proceedings are unsuccessful, it is then possible to turn to the administrative courts, where properly exhausting procedural remedies in the earlier stages plays a key role.

Lawyers from ARROWS, a Prague-based law firm, repeatedly remind clients that a tax audit is a highly formalised legal process in which every statement, every document submitted or not submitted, and every unused procedural option can be crucial.

An experienced attorney therefore does not merely act as an “interpreter” between the company and the tax office, but actively manages the defence strategy, helps assess which documents and arguments are essential, and ensures that all communication is consistent and grounded in the relevant law and case law. As a result, a company can significantly increase the chance that the dispute will end in its favour, or at least minimise the negative impact.

Sanctions, penalties and interest: The financial impact of a mistake

When a tax audit ends with an additional tax assessment, it is not only about the tax amount itself, but also about related sanctions and interest, which can significantly increase the overall burden. If tax is additionally assessed on the basis of a tax audit, an obligation usually arises to pay not only default interest.

But also a penalty amounting to 20% of the additionally assessed tax, or 1% of the amount by which the tax deduction was reduced. If a tax loss is reduced, the penalty is typically one percent of the difference between the originally claimed and the newly determined tax loss. These amounts are added to the additional assessment itself and often represent a significant hit to the company’s finances. Under the Czech Tax Code, default interest is based on the Czech National Bank repo rate applicable on the first day of the relevant half-year, increased by eight percentage points.

Interest usually starts to accrue from the fourth day after the original due date until the day the additionally assessed tax is actually paid. In practical terms, this means that the longer the dispute lasts, or the later the additionally assessed tax is paid, the higher the resulting interest. In longer-running disputes or for larger amounts, default interest can reach sums that are, in themselves, a significant financial burden and may affect the company’s liquidity.

In addition to penalties and interest, there are a number of other sanctions related to breaches of tax obligations. A typical example is a fine for late filing of a tax return, which arises if the taxpayer files the return more than five working days after the deadline or does not file it at all.

The amount of the fine depends on the assessed tax, tax deduction or tax loss and is 0.05% of the assessed tax (or 0.01% in the case of a tax loss or deduction) for each day of delay, but no more than 5% of the tax, deduction or loss, with an absolute cap of CZK 300,000. The minimum fine is CZK 500.

In the case of the VAT control statement, sanctions are even stricter—the law sets fixed fines for late filing (e.g., CZK 10,000, CZK 30,000, CZK 50,000 depending on the length of the delay), a late response to a request, or failure to comply with a request to supplement data. In extreme cases, a fine of up to CZK 500,000 may be imposed for serious obstruction or frustration of the administration of value added tax.

In extreme cases, the tax administrator may impose a fine of up to half a million Czech crowns for failure to comply with a non-monetary obligation, for example ignoring a request, not allowing access to premises, or concealing evidence. In addition, there is also the possibility of initiating misdemeanour or criminal proceedings if the statutory conditions are met, which may lead to further sanctions, including personal liability of statutory bodies.

For management, this means that the tax area is not just a matter of “a few percent” in savings, but a potential existential risk if underestimated. Lawyers from ARROWS, a Prague-based law firm, therefore, when representing clients in tax disputes, monitor not only the amount of the additionally assessed tax itself, but also the structure of related sanctions and the possibility of reducing or remitting them in accordance with the law and the internal guidelines of the Czech Financial Administration.

In practice, this may include, for example, using the mechanism of an additional tax return, which can lead to a lower fine for late tax reporting, arguing for a reduction of penalties or interest in justified cases, or challenging the legal basis of the additional assessment itself in appeal or court proceedings. Thanks to this, in many cases the financial impact can be significantly mitigated, even if the additional tax assessment cannot be fully overturned.

Possible issues

How ARROWS helps (office@arws.cz)

Additional tax assessment and penalties after a tax audit: a significant impact on the company’s cash flow and profitability

Representation during the audit and appeal proceedings: lawyers from ARROWS, a Prague-based law firm, prepare the arguments, propose evidence and draft the appeal to minimise both the additional assessment and related sanctions.

Disallowed expenses and VAT deductions due to insufficient documentation: risk of additional taxation and disputes with the tax authorities

Setting up and reviewing documentation: lawyers from ARROWS, a Prague-based law firm, help set up contracts, internal policies and evidentiary standards so that the justification of expenses and deductions withstands an audit.

High fines for VAT control statements and late filing of returns: unnecessary sanctions and reputational impact

Prevention and crisis management: the ARROWS, a Prague-based law firm team analyses processes, recommends adjustments to internal procedures and, in the event of an error, represents the client in negotiations to reduce fines or have them remitted.

Suspicion of participation in VAT fraud: risk of denial of the deduction and potentially criminal proceedings

Defence against suspicion of fraud: lawyers from ARROWS, a Prague-based law firm, help meet the burden of proof, demonstrate the genuine course of transactions and refute allegations of culpable participation in fraud.

Incorrectly set transfer pricing between related parties: additional tax assessment and a dispute over whether the prices are at arm’s length

Preparation of transfer pricing documentation: the ARROWS, a Prague-based law firm team sets the methodology, prepares Transfer Pricing Documentation and represents the client in defending transfer pricing before the tax administrator.
Most common questions about tax audits (What clients often ask)

Among the most common client questions in connection with a tax audit is how much they must “open the door” to the tax office and whether they have the right not to provide certain information. The answer is that the taxpayer has an extensive duty to cooperate.

This obligation is, however, limited by the subject matter and scope of the tax audit; beyond that scope, the taxpayer is not required to provide information that is clearly unrelated to the tax in question and the relevant period. At the same time, the taxpayer has the right to request that the tax authority’s demands be specific and proportionate, and may defend against excessive requests, for example by filing a complaint about the tax administrator’s procedure or an objection against undue delays in the proceedings.

In these situations, attorneys from ARROWS, a Prague-based law firm, help clients assess which requests are legitimate and which can be challenged.

A second recurring question is whether it makes sense to “fight” an additional tax assessment, or whether it is better to pay and avoid escalating the dispute. In practice, it depends on the specific circumstances: sometimes part of the additional assessment is clearly unfounded and there is a real chance of success on appeal or in court.

In other cases, it may be rational to accept a compromise solution and focus on minimising penalties and interest. What is decisive is a high-quality legal analysis that evaluates not only the legal arguments, but also the time and financial costs of the dispute, the likelihood of success, and the impact on relationships with the authorities and business partners.

Attorneys from ARROWS, a Prague-based law firm, therefore always have an open discussion with clients about the risks and benefits of different strategies and recommend the approach that best matches their business priorities.

A third typical query concerns how to prepare preventively for a tax audit if the company has not yet undergone one but expects it due to the volume of transactions or the nature of its business. In such a case, it is advisable to carry out an internal “pre-audit”, i.e., a tax risk audit.

It is advisable to review the most significant areas, such as VAT, transfer pricing, depreciation, deductible items and exempt income, and to check the completeness and quality of the documentation. As part of these audits, attorneys from ARROWS, a Prague-based law firm, simulate the tax authority’s approach, identify weak points and propose specific steps to resolve them before they become the subject of an audit.

Why companies rely on ARROWS in tax law

The main reason companies rely on the attorneys of ARROWS advokátní kancelář in tax matters is their ability to combine two disciplines that are often separated in practice—strategic tax planning and procedural defence in tax proceedings and disputes.

Many entities either have in-house tax specialists who focus on optimisation and day-to-day matters, or external attorneys who become involved only when an additional assessment or dispute arises. However, such a “serial” approach leads to optimisation schemes that are not sufficiently thought through from a procedural perspective, while procedural defence often suffers because the attorney must retrospectively identify the economic and tax context that was not legally addressed in advance.

Attorneys from ARROWS advokátní kancelář proceed differently: when designing a tax strategy, they always consider how the chosen solution would be defended in a potential audit or before Czech courts.

This means that already when setting transfer pricing, planning the sale of an ownership interest, deciding on the use of tax losses, or defining internal policies for cost accounting, they think about the evidence, documentation and arguments that can be used in the future. The client thus gains not only an immediate tax effect, but also the assurance that the chosen solution has a “procedural backbone” and will stand up in a potential dispute.

At the same time, detailed knowledge of tax planning enables attorneys in tax audits to quickly understand the economic logic of transactions and build a robust defence on that basis. Another factor is experience with tax proceedings at all stages—from responses to requests, through the course of the audit, appeals, and up to administrative actions and cassation complaints. Tax proceedings are highly formalised, and each step can affect the possibility of later defence.

For example, failing to exercise the right to propose evidence or failing to specify particular grounds of appeal can significantly limit the scope for arguments before the court. Attorneys from ARROWS advokátní kancelář therefore carefully plan the procedural strategy when representing clients, ensure timely and complete submissions, and continuously inform management about risks and possible scenarios for how the dispute may develop.

The aspect of international reach, which is essential for many clients, should not be overlooked either. Companies with an international structure, foreign investors, or entrepreneurs carrying out cross-border transactions encounter issues of double taxation, the application of double tax treaties, or the need to initiate a mutual agreement procedure if the tax authorities of two states do not agree on the allocation of the tax liability. In such cases, it is crucial to have a partner who understands both Czech tax law and international standards and can coordinate the approach across different jurisdictions.

ARROWS advokátní kancelář relies on the ARROWS International network, which makes it possible to handle even complex cross-border structures and disputes in coordination with local partners abroad.

Working with ARROWS advokátní kancelář on tax matters

Clients often ask when is the “right time” to involve attorneys in tax matters and whether it makes sense to contact ARROWS advokátní kancelář even when no tax audit is currently underway. Experience shows that it is most effective to involve attorneys already at the stage of planning more significant steps.

Typically, this is when preparing the sale of a company, restructuring a group, setting transfer pricing, or entering a new market. Attorneys can then propose a structure that is tax-efficient and legally sound from the outset, and the client avoids costly subsequent adjustments. Of course, it also makes sense to approach ARROWS advokátní kancelář when an audit or dispute is already underway; in that case, rapid orientation in the situation and experience with procedural strategies are key. Another frequent question is how cooperation works in practice and what the relationship is between the in-house accounting or tax department and the external law firm.

In an optimal setup, it is not competition but complementarity: the in-house team knows the day-to-day operations in detail and has access to data, while the attorneys bring specialised know-how, experience from tax proceedings, and a broader overview of trends in the practice of the Czech Financial Administration and case law. In specific projects, attorneys from ARROWS advokátní kancelář work closely with internal finance and legal teams, share arguments with them, and propose solutions that are both practical and legally sustainable.

A third area of questions concerns liability and the assurance that an external law firm can provide. ARROWS advokátní kancelář is registered with the Czech Bar Association (Česká advokátní komora), follows its rules, and for maximum client security is insured for professional liability with a high limit of CZK 400,000,000.

For the client, this means that in the event of an error on the part of the attorneys, insurance protection exists, which significantly distinguishes professional legal services from informal advice or improvised solutions. At the same time, an attorney is legally bound by confidentiality, which is very important in sensitive tax matters.

Conclusion

In conclusion, the main reason companies rely on ARROWS advokátní kancelář in the area of tax law lies in the combination of three key factors. The first is expert yet practically oriented tax optimisation.

It does not address only “how much can be saved this year”, but takes into account the company’s long-term operation, documentation, and a possible future audit. Lawful tax planning thus does not become a risky scheme on the edge of the law, but a well-considered setup of the structure, transfer pricing, investments or transactions that respects both the wording of the law and its purpose.

The second factor is strong procedural representation during audits and disputes with the tax authority. The Financial Administration now uses sophisticated analytical tools and targeted audits, while tax proceedings are procedurally demanding and any omission can have fundamental consequences.

Attorneys from ARROWS, a Prague-based law firm, provide clients not only with expert substantive-law arguments, but also with rigorous procedural discipline – from responses to requests, through the course of an audit, appeals, and all the way to court actions. As a result, the chances of success increase significantly while the risk of penalties, interest, and other sanctions is minimized.

The third pillar is the ability to view tax law as part of broader risk management and corporate strategy. This means setting up internal processes, documentation, and data handling so that the company is prepared in the long term for inquiries and audits.

At the same time, it means aligning tax decisions with business objectives, financing, corporate structure, and any international aspects. For investors, groups, and mid-sized to larger companies, this very complexity is why they should not rely on improvisation or isolated advice, but instead entrust tax-legal matters to an experienced team.

If you do not want to risk tax errors in your company, unnecessary sanctions, blocked transactions, or protracted disputes with the Financial Administration, it is safer to address tax issues early and systematically. Attorneys from ARROWS, a Prague-based law firm, have long focused on tax law, understand both the Czech and international context, and will help you set up tax optimisation and representation during audits so that they support the stable growth of your business. For a non-binding consultation or a more detailed assessment of your situation, you can contact ARROWS, a Prague-based law firm, at office@arws.cz at any time.

Frequently Asked Questions

1. Does it make sense to involve attorneys from ARROWS, a Prague-based law firm, if the company already works with an external accountant or tax advisory firm?
The answer is yes, because the role of an attorney differs from that of an accountant – an attorney bears professional liability, addresses complex legal and procedural issues, and represents the client in tax proceedings and disputes, while an accountant focuses on day-to-day processing of the agenda. The combination of an in-house or external accountant and a specialised Prague-based law firm typically leads to a higher level of certainty and better alignment of the tax, legal, and business aspects of the company’s operations. If you are considering setting up such cooperation, you can contact ARROWS, a Prague-based law firm, via office@arws.cz.

2. In which situations is tax optimisation truly unavoidable, and when is it “only” a pleasant bonus?
From a practical perspective, it is crucial especially in the sale of ownership interests and shares, group structuring, transfer pricing, larger investments, and the use of tax losses; in these areas, high-quality optimisation can make a difference of millions or tens of millions of Czech crowns. In day-to-day operations, it is more about ongoing work with costs, depreciation, VAT, and deductible items, which increases efficiency but must also be legally defensible. Attorneys from ARROWS, a Prague-based law firm, will help you distinguish where it makes sense to invest in sophisticated optimisation and where a simpler solution is sufficient, and they will be happy to discuss these questions with you at office@arws.cz.

3. What should you do if a request or a notice of the commencement of a tax audit has already arrived and the company does not feel it has “everything in perfect order”?
In such a case, the key is not to panic, but to quickly assess the situation, gather the relevant documentation, and involve experts with experience in similar proceedings as soon as possible. An experienced attorney will help formulate responses to requests, propose a communication strategy with the Financial Administration, and minimise the risk of procedural errors that could harm the company. If you are at the stage where the audit has already started or is expected, we recommend contacting ARROWS, a Prague-based law firm, at office@arws.cz as soon as possible.

4. How can errors from past tax periods be remedied retroactively, for example if the company finds that certain transactions were not taxed correctly or that some VAT deduction claims are not sufficiently supported by documentation?
The Tax Code allows the filing of an additional tax return and thereby partially taking the initiative, which can have a positive impact on the amount of sanctions and on the tax authority’s assessment of the company. At the same time, there are options to defend even against final decisions, for example through reopening of proceedings or extraordinary remedies before the administrative courts, provided the statutory conditions are met. Deciding which approach is appropriate in your specific situation is best done after careful legal analysis – attorneys from ARROWS, a Prague-based law firm, will be happy to help; just reach out at office@arws.cz.

5. Can ARROWS, a Prague-based law firm, also handle tax matters with a foreign element, for example when a company has subsidiaries in other countries, when a Czech entrepreneur invests abroad, or when a foreign investor enters the Czech Republic?
The answer is yes: thanks to the ARROWS International network and cooperation with partners in other jurisdictions, it is possible to coordinate tax planning and disputes across multiple countries, take double taxation treaties into account, and, where appropriate, use international mutual agreement mechanisms. If you have a structure or transactions with an international element, it is advisable to consult them with experts who understand both Czech and foreign law – the contact for ARROWS, a Prague-based law firm, is office@arws.cz.

Disclaimer: The information contained in this article is for general informational purposes only and serves as a basic guide to the issue as of 2026. Although we strive for maximum accuracy, laws and their interpretation evolve over time. We are ARROWS Law Firm, a member of the Czech Bar Association (our supervisory authority), and for the maximum security of our clients, we are insured for professional liability with a limit of CZK 400,000,000. To verify the current wording of the regulations and their application to your specific situation, it is necessary to contact ARROWS Law Firm directly (office@arws.cz). We are not liable for any damages arising from the independent use of the information in this article without prior individual legal consultation.

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