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Czech Republic: Solidarity tax

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Czech Republic

Solidarity tax: the General Financial Directorate has issued a statement regarding the interpretation of the new provision in the Income Tax Law on the tax increase regarding income taxed abroad.

According to this interpretation, Czech tax residents’ foreign-sourced income that is taxed abroad is not affected by the solidarity tax increase and it will not be counted in determining the portion of income subject to the solidarity tax increase.

The General Financial Directorate confirmed also that if a resident taxpayer only receives income that is excluded from taxation in the Czech Republic, he/she is not obliged to file a personal income tax return in the Czech Republic. This concerns mainly income from dependent activity/employment abroad.

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Czech Republic: a draft law on changes to tax laws

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Alessandro Pasut

 Czech Republic

The Chamber of Deputies is currently discussing a draft law on changes to tax laws in connection with the re-codification of private law. The draft law contains also an amendment to the VAT law limiting the supply recipient’s liability for VAT not paid by the supplier in cases where the payment for the taxable supply was made to an account of the supplier different from that published by the Tax Administration.

The liability will be limited to cases where the payment for the taxable supply is more than double the amount under the Act of the restriction of cash payments, i.e. CZK 700,000. This condition applies to the whole payment for the taxable supply, irrespective of how it was provided or whether advance payments have been made.

This regulation of liability, however, only applies to cases where payments are made to an account not published by the Tax Administration. For other cases, for example when a payment is made to a foreign account or when supplies are received from an unreliable payer, the rules remain unchanged.

Whereas the amendments to tax laws in connection with the re-codification of private law are generally effective from 1 January, the amendment to the VAT law modifying the rules on liability applies on the first day of the calendar month following the date of promulgation of the law.

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Czech Republic: Corporations Act

Alessandro PasutSpecial regulations for new joint-stock companies. The Corporations Act provides for special requirements concerning the acquisition of assets for consideration exceeding 10% of the registered capital of a joint-stock company from its founders and shareholders for two years after it was incorporated or became a joint-stock company.
The consideration for the transferred assets may not exceed the value determined by an expert and the acquisition, together with the consideration amount must be approved by the general meeting. Under the new provisions the board of directors (not the court, as at present) will appoint an expert.
The failure to disclose a conflict of interest is always considered a breach of due managerial care by the representative. General provisions of the new Civil Code will apply if a representative breaches general conflict of interest rules. The corporation may claim such actions are invalid in the general limitation period, i.e. within three years of learning of the conflict of interest, but no later than ten years after the contract was made.

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Czech Republic: changing of the Commercial Code

Alessandro PasutNew provisions of the Corporations Act significantly change the existing rules of the Commercial Code regarding the acquisition of assets between a joint-stock company or a limited liability company and its related parties.

Conflict of interest between a corporation and its representative.
While currently the rules governing these transactions only apply to limited liability and joint-stock companies, the new regulations should apply to all corporate entities. The new Civil Code stipulates an inherent conflict of interest between a corporation and its representative (member of its statutory body, partner or member) or persons close to, or controlled or influenced by the representative.
The representative must immediately disclose any possible conflict of interest to the body she/he is a member of, as well as to the supervisory body, or the supreme body of the corporation. At the same time, she/he must disclose the terms under which an acquisition contract is to be concluded. After being informed about such a conflict of interest, the supervisory or the supreme body of the corporation may suspend the representative from office, or forbid the contract altogether.

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Czech Republic: Tax measures approved

Alessandro PasutA change in claiming VAT in real estate transfers has been approved. From 1 January 2014, transfers of plots on which structures or underground utilities have been erected will be subject to the same VAT regime as transfers of buildings. In the framework of the tax on the acquisition of immovable property, the Senate has changed the Government proposal by stating that the tax in a purchase or a transfer of real property will continue to be paid by the transferor. The acquirer will pay the tax only if agreed by the contracting parties. In other cases, such as auctions or contributions made to companies, the acquirer will be the payer of tax. The Senate also approved the concept of a liability for unpaid VAT when making payments to a bank account other than the one published by the tax authority. The liability will apply only to payments exceeding CZK 700,000.

 

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Czech Republic: Tax measures approved by the Senate

Alessandro PasutThe Senate approved a number of motions prepared by the Ministry of Finance to amend the draft legislation accompanying the recodification of the Civil Code.
The Senate agreed to retain the regulations currently applicable to investment funds, i.e. a 5% corporate income tax on investment funds and a 15% withholding tax on payment of profit shares will both continue to be applied in the following year. Investors who are legal entities and meet the criteria set by the directive on taxation of parent companies and their subsidiaries will again be allowed to claim an exemption from tax on these equity investments.
Among other significant issues approved by the Senate were the integration of an inheritance and gift tax into the Income Tax Act, an extension of the deadline for exempting the income of individuals from the sale of securities from tax from six months to three years, an increased support for research and development, the simplified creation of adjustments to receivables, an increase in the maximum limit for the deduction of public-benefit gifts, a new deduction to support professional education, and an increase of the tax-deductible incentives per pupil or university student.

 

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Czech Republic: Unreliable payers on VAT Act

Alessandro PasutUnreliable payers: the General Financial Directorate modified the information on the application of the VAT Act relating to the legal concept of an unreliable payer.
The unreliable payer concept is generally applied when a VAT payer seriously violates his duties. Serious violations are understood to be situations where the public interest involving the proper collection of value added tax is in jeopardy.
According to the General Financial Directorate’s information, public interest is considered to be in jeopardy also when a taxpayer breaches his duties, his entitlement to a VAT deduction is not acknowledged and is decreased by at least CZK 500,000, and, simultaneously, the taxpayer does not pay an additional assessment within the respective due dates. In such cases, only proceedings started after 1 January 2013 and proceedings whose outcomes will affect decisions of the tax authorities after 1 January 2014 will be taken into account.
The new information substantially extends the number of entities that may be affected by the unreliable payer concept. Even though the tax authorities will also consider other circumstances when making a decision about the status of an unreliable payer, it is obvious that the new criteria might be met by relatively unproblematic entities.

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Czech Republic: financial statements

Alessandro PasutFines for failing to deposit financial statements: the new penalties envisage the imposition of a procedural fine of up to CZK 100,000 if a corporation disobeys a request by the courts for the submission of documents. In the event of a repeated breach or if disobeying the courts has serious consequences for third parties and there is legal interest, proceedings on the dissolution of the corporation with liquidation can be initiated. The court of registration informs the corporation that proceedings have been initiated and offers a term during which the situation can be rectified.

The Act also stipulates a rebuttable presumption that a member of a statutory body who repeatedly does not deposit the documents, is in breach of the duty to act with all due professional care. It is for the member himself to rebut the presumption. The consequences of a breach of due professional care will be adjudged in accordance with a new and substantially stricter Corporations Act.

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Czech Republic: corporations and financial statement

Alessandro PasutCorporations not only have the obligation to file an income tax return but at the end of the accounting period they have also to compile an annual report and financial statement, and deposit these documents in the Collection of Documents of the Commercial Register. However, this duty is regularly breached.

A penalty can be applied for failure to deposit documents. Up to 31 December 2013 a court of registration could repeatedly impose a fine of up to CZK 20,000 for the failure to deposit documents on the basis of a request. It could also abstain from applying a fine if this was justified by the subsequent behaviour of the corporation, that is the submission of the documents.

As of 1 January 2014 the system is being tightened substantially with the new Public Registers Act. According to the explanatory memorandum, a public register and collection of documents are to serve as the basic source of information for the public, creditors, partners, and registered parties, and for this reason must be kept updated.

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Czech Republic: unrealised foreign exchange differences

Alessandro PasutCzech Republic

Unrealised foreign exchange differences.
Following a Supreme Administrative Court decision, according to which unrealised foreign exchange differences are not considered taxable income and should be included in the income tax base at the moment they are realised, an amendment was approved stating that unrealised foreign exchange differences will have to be included in the income tax base in the taxable period in which they are accounted for. Despite the conclusions made by the Court, the Directorate is of the opinion that even under the current legislation unrealised FX differences should be included in the taxable period in which they are accounted for.

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