In the previous issue of our newsletter, we focused on the development, which occurred in the past few months in the field of double taxation treaties. We will now continue with further news in this area. We will again go through the treaties according to the individual countries, and for each country I will give an excerpt of the most frequently used parameters of the treaties in a synoptic table. These tables need to be seen as a very simplified tool, however, which does not contain any more detailed information that may be necessary when assessing specific cases of taxation. The specific tax treatment of a given income must always be determined using the Treaty and possibly also its interpretation.

Chile

On December 2, 2015, a double tax treaty (“DTT”) was signed with the Republic of Chile in Santiago de Chile. There was previously a treatiless relation with Chile. The treaty entered into force on December 21, 2016 and is effective as of January 1, 2017. The DTT was published in the International Treaties Collection under the number 5/2017. The treaty is specific in some aspects. It reacts, for example, to the specific Chilean tax system, where the Chilean income tax is based on the concept of the “end owner of revenue” and is assessed in two stages, when the paid so-called first category tax is credited during the calculation of the so-called additional tax. The treaty react to this issue in article 7 - taxation of permanent premises, in article 10 - dividends and indirectly also in article 28, where it confirms the application of the respective Chilean regulation, which also contains an option for Czech investors to agree on the rate of the tax with the Chilean tax administration, and thus potentially ensure lower tax burden in case Chile raised the tax rates.

An overview of selected stipulations of the Treaty is presented in the following table:

Kosovo (in the legislative process)

On November 26, 2013, a DTT with the Republic of Kosovo was signed in Pristina. Basically since then, the Treaty finds itself in the legislative process. Since the year 2014, the Treaty has been on the agenda of meetings in the Chamber of Deputies several times, but has never been discussed, because discussion of this international Treaty is only possible in the presence of the minister of foreign affairs and the finance minister. The ministers have not met for any of the many meetings yet, and the Treaty has therefore not been approved yet. The next meeting is scheduled for the end of February. We will keep you informed about further development. In transactions with Kosovo, it is thus necessary to keep in mind that there is currently still a treatiless relation and in some cases, double taxation may occur. Unfortunately, neither the DTT with the former Yugoslavia, nor the DTT with Serbia and Montenegro can be used for mutual relations. An overview of selected stipulations of the Treaty, which was preliminarily agreed on by the governments of the two countries, can be found in the following table:

Turkmenistan (in the legislative process)

On March 18, 2016, a DTT with Turkmenistan was signed in Ashgabat. The treaty currently finds itself in the legislative process and the next discussion is scheduled for the end of February. There is currently a treatiless relation between the two countries, which the governments of both countries consider a major shortcoming in mutual relations and will endeavour to do their maximum for the Treaty to enter into operation as soon as possible. The Treaty has been prepared based on model treaties from the OECD and the UN and its formation should lead to increasing legal certainty of taxpayers from both countries. A specific feature of this DTT is that it, for example, enables taxing revenues from the sale of stakes in business corporations in the countries, where they are established. An overview of selected stipulations of the treaty is presented in the following table:

Iran

On April 30, 2015, a DTT was signed with the Islamic Republic of Iran in Prague. There was previously a treatiless relation with Iran. The Czech government was mainly motivated by business reasons to enter into this Treaty. Czech products have a long tradition in Iran and a good reputation, and for many Czech companies, the formation of the Treaty can thus contribute to setting up a clear taxation regime for income achieved in transactions with Iranian companies. The treaty entered into force on August 4, 2016 and is effective as of January 1, 2017. The double tax treaty was published in the International Treaties Collection under the number 47/2016. The double tax treaty also enables taxing revenues from sale of stakes in trade corporations in the countries, where they are established. An overview of other selected stipulations of the Treaty is presented in the following table:

Ukraine

On October 21, 2013, a Protocol for a DTT, which has been in operation since April 20, 1999 (published under the no. 103/1999), was signed in Kiev. A need to expand the stipulation of article 26 of the DTT ensued from a survey carried out by Czech financial authorities, that is to extend the exchange of information to taxes of all kinds and names. The Czech side has therefore proposed an amendment, and within it, both countries have agreed on further adjustments and improvements of the text of this DTT. These include for example a change in the definition of the term “ resident of the contracting state”, consisting in replacing the term “place of management” with the term “place of effective management”. Conditions for establishment of permanent premises in connection with the provision of various types of services are newly adjusted, with the reference period being prolonged from three to six months. For permanent premises emerging on grounds of performing construction and assembling work, the referential time test of twelve months remains preserved. In article 13, which deals with the taxation of profits from sale of stakes in companies, the scope of this stipulation is being extended to all legal forms of companies Previously, only the income of a Ukrainian resident from the sale of his stake in a Czech joints stock company, in the  value of which immovable property represented at least 50%m could be taxed in the Czech Republic, and other legal forms of companies, for example limited companies owning real estate in the Czech Republic, were not affected by taxation in our country. The Protocol came into force on December 9, 2015 and is effective as of January 1, 2016.

We will focus on other news in this area in one of the upcoming issues of the newsletter. In case you are interested in this topic and you are interested in consultation, do not hesitate to contact us.

Author: Daniela Císařovská