The news about an amendment of the tax laws of the so-called tax package, which amends a total of 10 acts, has appeared in the media several times already. With regard to the fact that on 27 March 2019 the act was published in the journal of laws under number 80/2019 Coll. and an act takes effect from the first day of the calendar month following the day of its promulgation, it will come into force and take effect from 1 April 2019. In this article, we will focus on the first part of the amendment, which focuses on the income tax act. The key areas in the amendment of the corporate income tax are the following ones:

1. Implementation of the ATAD directive

In compliance with implementation of the directive against evading tax liabilities, the following four areas are newly adjusted: a) Limitation of deductibility of borrowing costs, b) Taxation in case of relocation of assets without a change of ownership, c) the Rule for controlled foreign companies d) Hybrid mismatches (consequences of different legal qualifications). We have already informed you about this topic in our articles http://www.fucik.cz/publikace/novela-zakona-o-dani-z-prijmu-1/ and http://www.fucik.cz/publikace/nova-pravidla-po-danovou-uznatelnost-uroku/.

2. Reporting of income going abroad article 38da

The amendment extends the reporting obligation for the purpose of international exchange of information in tax matters. Exempted income or income, which is not subject to taxation in the Czech Republic, in relation to income, from which a withholding tax is collected, will newly be reported as well. Reporting will thus apply for example to dividends paid from a Czech subsidiary to a foreign parent company, which are exempted from the withholding tax. The deadline for reporting has been set in the same way as in the case of collection of the withholding tax. For exempted income, the deadline is calculated as if there were a duty to pay the withholding tax. The filing is made on a form of the finance ministry of CR (or a printed output from a PC printer with data, content and arrangement identical to that of the form of the finance ministry of CR) or by means of a data message in the format and structure published by the tax administrator. The option of exemption from the reporting obligation upon request exists, for a maximum of 5 years (only in justified cases). An exemption from the filing obligation exists in case the total of the income of a given type going to a given tax non-resident does not exceed CZK 100,000 in the given calendar month, or it is income taxed according to article 6 paragraph 4 of the ITA (income from employment, if the employee has not signed a declaration). The stipulation takes effect from the date, on which the act takes effect.

3. IFRS 9 (article 23 paragraph 19 of the ITA)

A stipulation reacting to IFRS 9 is newly being implemented, which only applies to taxpayers, who have a duty to keep accounting according to decree no. 501/2002 Coll. (i.e. the accounting entities are banks and other financial institutions). Taxpayers will be able to include changes from valuation recognized in shareholder's capital accounts in the tax base by means of adjustment of profit/ loss upon realisation of these instruments (for example in case of sale). This stipulation will apply from the date the act has taken effect, but at the same time it applies to the taxable period beginning after this act has taken effect, i.e. if the taxable period is the calendar year, this stipulation will be effective from 1 January 2020.

4. Research and development

We have already informed you about the new regulation of project documentation and reporting of research and development to the financial authority earlier in our article http://www.fucik.cz/publikace/vyzkum-a-vyvoj-nejnovejsi-poznatky-ze-soudnich-rozhodnuti-dalsi-vyvoj/. The lawgivers have adopted the stipulation relating to research and development, as proposed in the amendment.

At the end, we would like to add that in part six of this amendment, a minor alteration of the code of tax procedure is stated, which leads to encoding a ban on abuse of rights among the fundamental principles of tax administration (i.e. in all tax laws). When examining, if there has not been an abuse of rights, it is necessary to evaluate the prevailing purpose of the transaction, i.e. all objective circumstances, from which it follows that the aim is to gain a tax advantage. Abuse of rights does not apply to situations, where the rule of law gives the taxpayer the option of choosing between several ways that will lead to realisation of his aim and he will use one of the ways due to its tax advantageousness anticipated by the law. For more details on this topic, see our article http://www.fucik.cz/publikace/zneuziti-prava-v-danovych-zalezitostech/.

Marie Rudolfová & Petra Vaněčková