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Country-by-country reporting has been increasingly discussed in recent times, particularly in connection with top-up taxes. With its growing importance, it is essential to highlight the obligations companies face in this area. The concept of Country-by-Country Reporting (CbCR) was introduced by the OECD under its BEPS initiative, aimed at addressing tax base erosion and profit shifting between countries. Multinational groups with consolidated turnover exceeding EUR 750 million in the previous accounting period are required to prepare and submit a Country-by-Country Report. The obligation applies to entities located in tax jurisdictions that participate in the CbCR. The list of treaty countries participating in the CbCR is continuously updated and published via the Financial Bulletin on the website of the Ministry of Finance of the Czech Republic.
Czech companies must fulfill their CbCR obligations by submitting either a Report or a Notification, with the latter being the more common. The competent local tax authority is the Specialized Financial Office.
Czech companies belonging to a multinational group subject to the CbCR obligation, but which are not the reporting entity, must submit a so-called “CbCR Notification” (i.e., they are required to inform the Tax Authority about the entity reporting on behalf of the group). In the Czech Republic, this notification must be completed by the end of the period for which the CbCR is filed.
If the information provided in the CbCR notification does not change, this reporting obligation is generally a one-time requirement for the Czech entity. It must be fulfilled either:
If the reported data changes, the company must notify the Tax Authority within 15 days of the change.
The CbCR is submitted on behalf of the entire group by the designated “reporting entity”. This is usually the ultimate parent company; however, if the parent is based in a country not included on the list of participating jurisdictions, a representative European or parent entity may assume this role.
If the reporting entity is a Czech company, it must submit a CbCR each year within 12 months of the end of the relevant reporting period. The CbCR report consists of three main parts and includes the following information:
The information obtained through CbCR may be used by the tax administrator to verify transfer pricing practices or to select entities for tax audits, particularly when evaluating risks of tax base erosion and profit shifting.
Both the CbCR and the notification must be submitted to the Specialized Tax Office exclusively via the EPO application; submission through the company’s data box is not permitted.
Failure to comply with the notification obligation may result in a fine of up to CZK 500,000. If the reporting entity fails to submit the Country-by-Country Report, a penalty of up to CZK 1.5 million may be imposed.
The Organisation for Economic Co-operation and Development (OECD) recently published an overview of the most frequent errors made by companies when preparing Country-by-Country Reports. These include:
Therefore, if you are one of the companies affected by either CbCR or notification obligations, we recommend that you make sure that the information you provide meets all requirements of the tax authority.
In case it might be of your interest, we would be pleased to assist you with a complex fulfillment of your CbCR obligations or related transfer pricing issues.
In relation to the current situation, the Czech Government presented a package of tax measures which has been approved, the so-called Liberation Tax Package. It thus responds to the difficult situation affecting a large part of legal and natural persons. What areas do the measures concern?
The statutory deadline for filing of 2019 personal and corporate income tax returns will remain on 1 April 2020 (or 1 July 2020 in case of a statutory audit or filing of the tax return by a tax advisor based on power of attorney).
However, if the tax return is filed after 1 April 2020, the Financial Administration will not impose any penalties for late filing if it is done till 1 July 2020. Similarly, the Financial Administration will waive any interests for late payment of 2019 tax (tax underpayment), if the payment is settled by 1 July 2020. Tax overpayments shall be refunded within 30 days from the date of filing of the tax return (counted from the deadline for filing of the tax return at earliest).
There is no need to request an extension of the filing deadline for personal or corporate income tax returns until July 1, 2020, or to prove the reasons for the delay caused by the COVID-19 epidemic.
The above also applies to the filing of withholding tax statements for 2019, but does not apply to payroll tax withholdings statements that must be carried out by 20 March 2020.
Notifications of income exempted from taxation received in 2019 must also be filed by the statutory deadline, i.e. by 1 April 2020.
The Financial Administration further disclosed they would hold a considerate approach towards the requests for tax delays, requests for reductions or exemptions from the obligation to pay tax advances, or requests for the dismissal of penalties in case of delay. For those applications whose submission is connected with the obligation to pay the administrative fee, the administrative fee will be dropped if the application is submitted by 31 July 2020.
Up to the present date, no information has been published by the Czech Social Security Administration (“CSSA”) about their approach to the reporting of 2019 incomes and expenses of entrepreneurs, resp. payment of contributions, and employers’ insurance contributions. Therefore, the obligations and deadlines of employers and self-employed individuals are currently without any changes. The CSSA recommended the transition to electronic communication, specified the recommended procedure for self-employed persons when interrupting / terminating their activities, highlighted that it is possible to agreed extension of filing deadlines “remotely”. For physical filing of forms, there are special boxes at the entrances of selected workplaces.
The statutory deadline for filing of 2019 overviews of incomes and expenses is within one month from the deadline for filing of the tax return. If the tax return of the entrepreneur is not prepared and filed by a tax advisor, the entrepreneur will be obliged to submit overviews for 2019 no later than 4 May 2020. In case of an underpayment, it is due no later than 8 days after submitting the overviews.
In the light of the currently changing situation, we expect further concession related to this topic. We will keep monitoring the situation and inform you in case of any changes.
Health insurance companies stipulate the approach individually, to the date of preparation of this article, the following companies allowed filing of 2019 overviews of incomes and expenses by Monday 3 August 2020 without imposing a fine: VZP, ZPMV ČR, RBP-ZP, VoZP. Other health insurance companies are likely to join them gradually. The potential underpayment will then be payable for these health insurance companies no later than 8 days after the filing of 2019 overviews of incomes and expenses, i.e. no later than 11 August 2020. Overpayments are returned automatically.
If payments are delayed and penalties are due to the occurrence of coronavirus, payers (self-employed and employers) can file a so-called removal of the harshness of the law (a direct link with coronavirus spreads will have to be declared). All cases will be assessed individually.
We also recommend to entrepreneurs to consider applying for decreasing of prepayment.
The Health Insurance Bureau has assured that, in the event of coronavirus disease in another EU country, healthcare can be drawn into the Czech public health insurance account under the same conditions as for local insured persons. If necessary, a European Health Insurance Card has to be declared to the provider.
The statutory deadline for filing of the VATR and VATCS cannot be extended; penalties for late filing of VAT and VATCS will be treated as follows:
Since it is not legally possible to postpone the start of the third and fourth phase of EET (relevant to for e.g. the liberal professions, transport, and manufacturing industry) which are effective as from 1st May 2020, the Financial and Customs Administration have committed to refrain from enforcing and inspecting of EET obligations of tax payers concerned for the duration of a three month period. During this “tolerance period” from 1 May 2020 to 31 July 2020, no penalties in connection with late commence of EET within the third and fourth phase will be levied.
On Monday, 16 March 2020, Českomoravská záruční a rozvojová bank, a.s. („ČMZRB“) commenced receiving applications for the COVID loan program. The aim of this program is to alleviate the situation of small and medium-sized enterprises in connection with COVID-19 epidemic and subsequent preventive measures. Applications may be submitted by 31 December 2020 or until the planned allocation of the call is exhausted, or the amount by which the assistance will be increased (Note: the originally planned amount of CZK 600 million was increased to CZK 1.7 billion, the government promised any further increase). The ČMZRB will decide on the allocation of the interest-free loan with regard to the presumption of meeting the qualifying criteria.
Through the program, entrepreneurs can obtain an interest-free loan in the range from CZK 500,000 to CZK 15 million intended for operational financing, i.e. to pay employees’ wages, rent, energy costs, purchase of supplies, payment of supplier invoices, etc. Conversely, the loan will not be used to finance investment into the assets of the applicant.
Loan applications will only be submitted electronically to the ČMZRB e-mailroom. Documents proving that the entrepreneur has been in difficult situation in relation to COVID-19 epidemic and follow-up measures will form an essential part of the application. Practically, such documents should confirm the cancellation of orders by customers, the impossibility to fulfil their supplier – customer obligations due to failure to provide contracted inputs, cancelling tours in case of travel agencies, etc. In addition, the applicant shall provide for e.g. financial data for the three closed accounting periods as well as a financial forecast for the three coming accounting periods.
If you are interested in obtaining detailed information on the conditions under which the interest-free loan can be obtained, or if you require assistance in preparing the application, we will be pleased to assist you.
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