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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.
We bring you an overview of tax news that have recently entered into force, such as the abolition of real estate acquisition tax in the Czech Republic, as well as legislative amendments that are currently in the approval process and which are expected to take effect from next year.
With effect from 26 September 2020, the real estate acquisition tax was abolished. This change has retrospective effect and applies to acquisitions for which the title was registered in the Real Estate Register from 1 December 2019 and later. In case the tax has been already paid, the taxpayer could be refunded on the basis of the official request submitted to the Czech tax authority.
Following the abolition of real estate acquisition tax, additional changes in the area of income taxes have also been made:
The time test for exempting income from the sale of real property not used / not intended for residential purposes was extended from 5 to 10 years. The extended time test will be applied to sales of real property acquired after 1 January 2021. The exemption should, however, remain even before elapse of 10 years if the proceeds from the sale are used to satisfy the taxpayer´s own housing needs.
Furthermore, the maximum limit for the deduction of interest on a mortgage loan was reduced from CZK 300,000 to CZK 150,000 per year. This change applies to interest on mortgage loans concluded from 1 January 2021.
The Ministry of Finance has submitted a proposal for tax amendments with the suggested effect from January 2021. This proposal has currently passed its first reading in the Chamber of Deputies and includes changes in the area of income taxes and real estate tax.
Below we summarize the most important tax changes currently under discussion:
First change represents for taxpayers more or less a confirmation of existing practice and enhances the importance of the information contained in the land register. For the purpose of determining land tax, the type of land registered in the land register should be decisive, regardless of whether it corresponds to the actual state of use or not.
The amendment further suggests a possibility for the municipalities to determinate a local coefficient not only for the whole municipality, as has been the case so far, but also to set a local coefficient just for part of the municipality in order to distinguish the different conditions in particular municipality areas (such as location, level of public facilities, transport accessibility etc.).
From 2021, employers could provide their employees with contributions for meal allowances in monetary form. The ministry intends to provide an alternative method to the already existing possibility of providing meal allowances in non-monetary form i.e. meal vouchers (companies may save on commissions associated with the provision of meal vouchers). The tax impacts of both forms, however, are similar. According to the proposal, the monetary contributions would be treated as a tax-exempt income up to 70% of the meal allowance amount on the employee’s part. The contributions could be provided up to the upper limit of the meal allowances for a business trip lasting 5 – 12 hours per shift which amounts to CZK 72.10 for 2020. The exemption will be valid only for one type of contributions, namely monetary or non-monetary. On the employer’s part, the contributions would be treated as a tax deductible expense with no limitation and thus would not be subject to tax or social security and health insurance premiums.
According to the current provisions, taxpayers are obliged to report income paid to abroad that exceed CZK 100,000 per month. In order to reduce the monthly administrative burden associated on both taxpayers and tax administrators, the ministry has proposed to increase the limit to CZK 300,000. However, this would be applicable only for income exempt or not subject to taxation in the Czech Republic. Hence, the reporting of income paid to abroad that is taxed using withholding tax on a monthly basis remains unchanged. Income that exceed the suggested monthly limit would no longer be reported monthly, but only once a year by the end of January of the following year. The annual report would include income for the months in which this limit was exceeded
The government has decided to proceed with the long-promised abolition of the super-gross wage, while at the same time introduce progressive taxation at rates of 15% and 23% for all types of income. The higher rate would be applied on gross income that exceed 48 times the average wage (for 2020, the amount of CZK 1,672,080). According to the recent debate, the abolition would be only for two years.
Furthermore, following additional changes regarding to tax depreciation of assets have been incorporated into the tax amendment for 2021 thought amending proposals:
The introduction of extraordinary depreciation as used to be applied for assets put into uses from 1 January 2009 to 30 June 2010 in response to mitigate the impact of economic crisis. Based on the actual proposal, the extraordinary depreciation charges would be possible to apply to tangible fixed assets belonging to the first and second depreciation categories and acquired in the period from 1 January 2020 to 31 December 2021.
The proposal further suggests increasing the threshold for classification in the category of tangible assets and their technical improvement from the current CZK 40,000 to CZK 80,000. The increased threshold would be applied to tangible assets and technical improvement acquired after 1 January 2020.
Last but not least, the abolition of tax amortization of intangible assets is again being considered. According to the amending proposal, for the tax depreciation purposes, the accounting depreciation of the intangible assets would be taken over. This new tax depreciation set up would be applied for the first time to intangible assets acquired from 1 January 2020.
Besides above, the amendment contains other tax changes (such as change in taxation of discounted bonds, cancellation of exemption of Czech non-resident´s interest income from so-called Eurobonds etc.).
We will keep you updated on the further development and final form of the tax amendment in question.
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