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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: 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: Miscellaneous

Criminal liability of legal persons. As of 1 January 2012 the concept of criminal liability of legal persons is valid for all Czech legal persons and entities that do business on the territory of the Czech Republic. It also applies to offences committed abroad. Under the new rules the company is responsible if it commits an offence in its own name or in the framework of its activities or if it is committed by an employee authorised by the statutory authority.

This concept refers, in particular, to offences against property (e.g. fraud) and to economic offences (reduction of taxes, the non-payment of taxes, insurance premiums on social security and similar obligatory payments, etc.). Legal persons can be punished by the confiscation of property, a financial penalty or even dissolution of the legal person, the prohibition of the performance of public contracts or the prohibition of the acceptance of grants and subsidies.

Corporate income tax. As of 2012 the remuneration of members of the statutory bodies is a tax deductible expenditure. This possibility applies to remuneration paid to members of the Board of Directors of joint stock companies and the Board of Directors of cooperatives.

The regulation of deadlines for filing tax returns in the case of company transformations where the decisive date of a transformation is not the first day of the calendar or fiscal year has been amended many times in the Income Tax Law. Before 14 July 2011, the deadline for filing a tax return was the end of the month following the month in which the general meeting approved the transformation. The amendment that became effective on 15 July 2011 adjusted this deadline by extending it to three months. The most recent amendment in effect since 1 January 2012 adjusts the deadline back to a one-month period, although it is likely that this may be a legislative error.
The amendment to the Transformation Act introduces the possibility to take advantage of tax losses in the case of cross-border transformations. The deadlines for submitting a tax return for a cross-border split and for cases where the decisive transformation date follows the date of decision of the general meeting concerning the approval of the transformation are amended.

VAT. The Ministry of Finance is currently working on a draft amendment to the VAT Law scheduled to come into effect on 1 January 2013. The amendment being prepared should implement some requirements of European legislation, and address existing problems in applying the present Act.