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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 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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Czech Republic: Consequences of the amended VAT Act

According to the information of the General Financial Directorate published on the website of the Czech Financial Administration, the following situations are considered a significant breach and also the fulfilment of only one criterion will be enough to determine a breach: the VAT payer violates statutory obligations, resulting in an assessment or additional assessment of tax in an amount exceeding CZK 500.000 (approximately euro 20,000 euro) without accrued interest and fees; the VAT payer engages in “fraudulent” transactions and the tax admi­nistrator issues a security payment order that is not paid within the stated deadline; or over no fewer than three successive calendar months, the VAT payer has a cumulative VAT underpayment of no less than CZK 10 million (approxima­tely 400.000 euro) without accrued interest and fees.


Czech Republic: VAT Act

In July the Chamber of Deputies dealt with amendments to the VAT Act. Apart from the increases of the tax rate by 1% (to 15% and 21%) effective from 1 January 2013, that still needs to be approved by the Senate, the amendment also contains other measures regarding the method of calculating the tax base and the amount of tax.

The technical amendment to the VAT Act has been discussed only in the first reading, with the next debate planned for the autumn meeting of the Chamber of Deputies. It proposes changes of a technical nature as a reaction go changes in European legislation.

Among others, the amendment will extend the situations in which the customer is liable for payment of VAT on the supply in the event that it is not paid by the supplier. Apart from situations already covered by the present wording of the VAT Act, the customer will now be, without further conditions, liable for payment of VAT also if making the payment for the taxable supply to a supplier’s account that has not been published by the tax administrator. The customer will also be liable for VAT payment if the supplier is a so-called “unreliable payer”.



Czech Republic: VAT amendment

The Government has submitted to external comments the VAT Law amendment. The most significant changes scheduled to become effective from 2013 are as follows.

The amendment introduces a new concept of proving the authenticity, the integrity of the content and the legibility of an invoice through business controls which create a reliable audit trail between an invoice and a supply of goods or services. The General Financial Directorate will probably issue a methodology specifying details of such business controls.

The amendment aims to reduce the administrative burden connected with issuing electronic tax documents, thus an electronic signature will no longer be required. However, the customer will also have to agree to the electronic form of the invoice.

One of the most important changes concerning the real estate market is the proposed extension of the period after which the transfer of buildings, flats and non-residential space will become VAT exempt from 3 to 5 years. Taxpayers will then have the option to decide whether to use the exemption or not.

Persons who have to declare VAT on goods acquired from another Member State or on services received from a person established outside the Czech Republic, as well as persons providing service with the place of supply in another Member State, will no longer be required to register as “standard” VAT payers, but they become persons identified for VAT. As such persons identified for VAT will not be obliged to tax their effected transactions, but will only pay VAT from received supplies without being entitled to deduct related input VAT.

The amendment introduces a reduction of the turnover threshold for mandatory VAT registration of taxpayers with seat or place of business in the Czech Republic to 750 000 CZK registered in the past 12 consecutive calendar months.

The proposed amendment extends the mandatory electronic reporting of the following documents: regular and additional VAT returns, all forms of other VAT related reporting, attachments to the regular or additional VAT return or reports, notification of change of registration data, VAT registration application.