The Planned Tax Code Amendment Is Not Only Positive for the Taxpayer

The Planned Tax Code Amendment Is Not Only Positive for the Taxpayer

On 26 August 2019, the Government approved an amendment to the Tax Code prepared by the Ministry of Finance.

Part of the amendment is the legislative anchorage of the online tax office, thanks to which taxpayers will be able to solve more of their obligations online. For example, it should be possible to use an e-citizen login, data box login or login assigned by the tax authority to log into the tax portal and authorize submissions. The Ministry of Finance expects to launch the first version of the portal in the fourth quarter of 2020.

The amendment should also introduce an extension of one month’s period for filing tax returns due for a period of at least 12 months (e.g. income tax), from three to four months after the end of the calendar year if the tax return is submitted electronically.

Following the Constitutional Court’s judgment, partial refund of excess VAT in the form of advance payments should be possible in certain situations. On the other hand, the tax administration will now have 45 days to refund the excessive VAT. It currently has only one month.

In addition, the time limit for the imposition of the late filing of the tax return should be adjusted. It must now be paid if the delay is longer than five business days. This exemption should now only apply to taxes levied for less than one year. For example, for income tax, the penalty for late tax return filing should be calculated from the first day past the deadline.

Similar changes should also occur for interest on late payment, which should be newly calculated from the day following the original due date of the tax until the date of its settlement. At the moment, interest on late payment runs from the fifth business day following the original due date.

On the other hand, the amount of interest on late payment should now be the same as default interest under the Civil Code, based on which the amount of late payment interest corresponds annually to the repo rate set by the CNB for the first day of the calendar half-year in which the late payment occurred increased by 8 percentage points. The Tax Code now provides for an increase of 14 percentage points.

The expected date of entry into force is 1 May or 1 June 2020 depending on the course of the legislative process. I will keep you informed about further developments.

Tax Inspection of Airbnb Providers

Tax Inspection of Airbnb Providers

As part of its audit activities, the financial administration has focused in recent months on individuals and entities providing accommodation services via electronic platforms. Tenants are obliged to pay tax on the income thus obtained. So far, the tax administration employees have examined almost 7,000 tax subjects and claim that they have collected approx. CZK 35 million.

“Financial administration has been reviewing the provision of various services through electronic platforms for a long time. We first went through prevention and developed a methodology describing the tax obligations of accommodation providers through electronic platforms. In addition, we have alerted taxpayers to meet their obligations before they may be asked to pay tax. Many of the taxpayers responded and met their tax obligations,”

said Tatjana Richterová, general manager of the Czech tax administration.

The tax administration obtains information on the income of taxpayers doing business through electronic platforms and thus has the data to verify whether or not the taxpayer has fulfilled the tax obligations compared to the filed tax return. In the event that there are differences between the income and the amounts stated in the tax returns, the tax administration usually addresses these taxpayers by a written appeal to submit ordinary or supplementary tax returns.

Meal Vouchers Lump-sum

Meal Vouchers Lump-sum

The Ministry of Finance is working on an amendment to the Income Tax Act, which is intended to simplify the provision of contributions to meals in preferential tax treatment. The existing law is to be supplemented by a so-called meal voucher lump-sum amount, which will allow the employee to receive money for meals instead of meal vouchers (“stravenky”).

According to the Ministry of Finance, one of the reasons why some employers do not use meal vouchers is too complicated administration. Another should be high fees for meal vouchers companies. At present, about 1 million employees do not receive any meal allowance.

“We want to give a million people the opportunity to benefit from meal allowances. At the same time, I see no reason for our small and medium-sized enterprises to finance the profits of foreign corporations that have their business built on the sale and purchase of a parallel currency. And not to mention the fact that a meal voucher that is unused becomes the net income of such a meal voucher company,”

says Alena Schillerová, Minister of Finance.

The plan will go through the classical legislative process, the proposal is due to be prepared at the beginning of next year at the latest and is planned to become effective from 2021.

Act on Digital Tax

Act on Digital Tax

The Ministry of Finance introduced a draft law on digital tax. It should implement a 7% unified digital tax on selected internet services provided in the Czech Republic. Digital tax should be applied to companies with a global turnover of over EUR 750 million a year and reaching in the Czech Republic a turnover of at least CZK 50 million per year from the taxable services.

Tax liability should arise in three areas:

> Placing targeted ads on the digital interface

> Use of the versatile digital interface

> Selling user data

Thus, some digital economy platforms which allow users to provide each other with services and goods for fees would also be subject to taxation, such as Facebook, Google, Airbnb or Uber.

This digital tax model has been designed earlier by the European Commission. However, at the EU level, this digital tax model has not yet been enforced. Nevertheless, the Ministry of Finance claims that they cannot wait for the EU and OECD to come to a decision.

“Negotiations in the EU and OECD will last for some time, but we can no longer wait and watch the unequal competition of global giants and our businessmen. That is why we have decided to introduce a Czech national regulation of temporary countervailing digital tax until the international compromise is reached,” says the Minister of Finance.

The digital tax in the Czech Republic should be calculated based on revenues from services provided during the tax period, namely the part that relates to Czech users. The tax period should be a calendar year. The tax should be paid in monthly advances and would be payable 3 months after the end of the tax year.

The law is expected to come into effect in mid-2020.

Permanent Establishment & Dependent Agent

Permanent Establishment & Dependent Agent

The Supreme Administrative Court (SAC) overruled the decision of the Regional Court in České Budějovice in the case of the creation of a Permanent Establishment in the Czech Republic, as it concluded that the company (a German tax resident) did not have a dependent agent here.

The SAC stated in its judgment that the Regional Court misinterpreted the double tax treaty and related regulations and did not sufficiently deal with the definition of an independent agent which negatively determines who is not a dependent agent.

According to the SAC, in case of a company operating in the Czech Republic, the features of independent agent were fulfilled as its services were used due to the language skills of its employees, its activities were not subject to orders or extensive control by the German tax resident, and it did not participate directly in the business risk of the company. The agent also performed the ordered services as part of its standard activities provided also to other clients.

In its argumentation, the SAC also referred to its previous judgment from 2013 and pointed out that in case of interpretative difficulties of international treaties, which the treaty on the avoidance of double taxation between the Czech Republic and Germany is, the procedure foreseen by the Vienna Convention on the Law of Treaties can be followed meaning that in case of international taxation, also the commentary on the OECD Model Double Tax Convention can be used, as on its basis the respective double tax treaty between the Czech Republic and Germany was concluded.

Change in Flat Rate Expenses

Change in Flat Rate Expenses

Within the so-called tax package (Act no. 80/2019 Coll.) some stipulations of the income tax relating to taxation of individuals have also been adopted.

Lump-sum expenses for freelancers and individuals with rental income have been increased again effective from 2019 tax year. The maximum limit of expenses, which an entrepreneur can apply as flat expenses, will thus again be calculated from the amount of CZK 2m as before the year 2018. The percentage of the flat rates (30 % – 80 %) depending on the type of self-employed activity or income from rent remains unchanged. It will be possible to apply this new maximum amount of lump-sum expenses for income achieved in the year 2019, i.e. in the tax return submitted in the year 2020.

Implementation of DAC 6 Directive

Implementation of DAC 6 Directive

The Ministry of Finance presented a draft amendment of tax laws in connection with implementation of the European DAC 6 directive. The amendment should come into force from 1 January 2020.

The European DAC 6 directive governs the process of reporting obligation on cross-border arrangements (transactions), which are now governed by act no. 164/2013 Coll., on international cooperation in tax administration. The transactions that should be subject to reporting obligation are not defined exactly, but based on specified criteria the transactions need to be tested, and if the conditions are fulfilled, the transactions need to be reported to the tax administration. The deadline for reporting the transaction has been set at 30 days from the day the scheme is made available or ready for implementation or since the first step in the implementation has been made. Moreover, the cross-border arrangements have to be archived for 10 years. It may be subject to a fine up to CZK 500,000 in case of infringement. In case of infringement on the reporting obligation (i.e. failure to announce the cross-border arrangement), a fine of up to CZK 1.5m is suggested.

Nevertheless, the amendment continues to preserve confidentiality of tax advisors and lawyers in relation to their client, but the respective advisor (mediator), who has been familiarised with the cross-border arrangement or suggested it, must inform his client that the client is obliged to report this cross-border arrangement within the regular deadline himself (on the assumption that no other mediator, who is not subject to professional confidentiality, participates in the transaction). In case the mediator does not point out the reporting obligation to the client, he may face a fine up to CZK 500,000.

Tax Base of Foreign Insured Employees

Tax Base of Foreign Insured Employees

Since 1 January 2019 new legislation impacting the calculation of the tax base of employees, who are subject to the obligatory insurance system in the EU, EEA and Switzerland, is effective.

According to the amended legislation, which was signed by the president on December 11, 2018, the calculation of a tax base (so-called super-gross salary) reflects which insurance system the employee is affiliated to. If it is proven that the employee is subject to foreign obligatory insurance of another EU member state or a member of the EEA or Switzerland, the tax base shall be calculated as gross income from employment plus an amount corresponding to the premiums which the employer pays as this obligatory foreign insurance. 

With respect to the calculation of the super-gross salary of employees subject to the Czech insurance system and those of third countries, the tax base remains the same. To assess the tax base for employees subject to the Czech system, the real amount of obligatory insurance contributions paid by the employer shall be added to the gross income; in case of individuals obligatory insured in a third country a hypothetical amount of insurance otherwise due based on the Czech legislation should be added.

The adopted amendment has serious impacts on practice, especially concerning payroll system set-ups. Without the information or confirmation of the real insurance premiums paid by the employers in the EU/EEA it will not be possible to correctly asses the tax on income from employment.