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.

Changes in posting of workers

Changes in posting of workers

In June 2018, the EU Council approved the final version of Directive (EU) 2018/957 of the European Parliament and of the Council of 28 June 2018 amending Directive 96/71 / EC concerning the posting of workers in the framework of the provision of services. The aim of the revised Directive is to facilitate the transnational provision of services, while ensuring fair competition and respect for the rights of workers employed in one Member State and posted by their employer to work temporarily in another Member State.

More specifically, the Directive aims to ensure fair wages and a level playing field for both sending and local companies in the host country, while respecting the principle of freedom to provide services.

The Ministry of Labour and Social Affairs has now submitted a draft amendment to the Labour Code and the Employment Act in connection with the transposition of this Directive.

Under the amendment, the employer will be obliged, for example, to provide the posted employee with travel expenses at least in the amount to which employees are entitled under Czech law, with the usual place of work in the Czech Republic being considered as a regular workplace for the travel expense purposes. Of course, as in the case of the other provisions, this provision applies only if these conditions are more favourable to the employees.

It is further proposed that to the seconded employee should, after 12 months, resp. 18 months, fully apply the legislative provisions of the Czech Republic, with the exception of the regulation on the creation, change and termination of employment.

It is also newly proposed that information and registration obligations are transferred to a foreign employer who sends workers to the Czech Republic. Newly, it should be the foreign employer, not the receiving employer, who informs the relevant regional branch of the Labour Office on the day of the posted employee’s commencement of work at the latest. Also the registration obligation, which had to be fulfilled by the receiving employer so far, is transferred to the foreign employer who is further obliged to keep records of these persons at their workplace.

The directive is to be transposed by 30 July 2020. I will keep you informed of further developments.

Residence permit and fraudulent conduct

Residence permit and fraudulent conduct

Based on § 77 para. b) of the Act No. 326/1999 Coll., on the Residence of Aliens “The Ministry shall revoke the residence permit if… (b) the foreigner has been granted permanent residence on the basis of the counterfeit and / or altered information based on which the application subsequently does not correspond to reality…”.

Recently, the Supreme Administrative Court has also interpreted this provision, confirming in its judgment that revocation of the residence permit under that provision is only possible if the fraud aspect is also present. However, this requirement of ‘fraudulent conduct’ does not necessarily mean that the crime of ‘fraud’ meeting the characteristics contained in the Criminal Code has been committed in obtaining permanent residence.

For example, fraudulent conduct may also be the presentation of a certificate of knowledge of the Czech language for the purpose of obtaining a permanent residence permit, which proves the successful passing of the examination, even though the examination was not passed and the foreigner had to be aware that he failed.

EU Work-life Balance Directive

EU Work-life Balance Directive

The European Council adopted the proposal for a Directive on work-life balance for parents and carers on 13 June 2019.

The European Commission decided to take a broader approach in addressing women’s underrepresentation in the labour market and the work-life balance challenges faced by working parents and carers encouraging better sharing of caring responsibilities between women and men.

The proposal includes the:

> Introduction of at least 10 working days paternity leave. Fathers/equivalent second parents should be able to take this leave around the time of birth of the child, compensated at least at the level of sick pay.

> Strengthening of the existing right to 4 months of parental leave, by making 2 out of the 4 months non-transferable from a parent to another, compensated at a level to be set by Member States and taken in a flexible way (e.g. part-time).

> Introduction of carers’ leave of 5 days per year for workers providing personal care or support to a relative or person living in the same household. 

> Extension of the existing right to request flexible working arrangements (reduced working hours, flexible working hours and flexibility in place of work) to all working parents of children up to at least 8 years old, and all carers.

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.

Brexit & Social and Health Insurance

Brexit & Social and Health Insurance

It is still unclear how the Brexit situation will develop. A decision about extension until the end of June 2019 has so far been made in Great Britain, but this postponement still needs to be approved by all EU countries. If the extension is achieved, the current EU rules will remain in operation. In terms of social security and health insurance, this mainly means the regulation on coordination of the social security systems no. 883/2004 and 987/2009.

In case of no-deal, Great Britain would be in the position of a third country with certain advantages for persons, who were in a cross-border situation before the Brexit date. A minimalist European regulation on arrangements for coordination of social security in case of no-deal exit of Great Britain from the EU is being prepared. This new regulation shall contain a rule of equal treatment, the principle of assimilation of facts and aggregation of the periods of insurance. The regulation will probably take effect from the date of Brexit.

Due to the postponement, the option of accepting a deal with the EU is still open, however, the British Parliament has rejected it twice already. If the deal was approved, all current rules regarding social security and health insurance would remain in force until the end of the year 2020.