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| May 7, 2024

Amendment to the Act on top-up taxes – clarification of terms and interpretations

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Although Act No. 426/2023 Coll., on top-up taxes for large multinational groups and large domestic groups (top-up tax act), could not yet be applied in practice (it is effective from 31 December 2023), at the end of April 2024 the Ministry of Finance of the Czech Republic submitted a draft amendment to the Act.

The aim of the amendment to the top-up tax act is to clarify certain concepts and to align the Act with the model rules set out in the OECD regulations and the latest interpretations.

We briefly summarise the proposed changes below:

  • the introduction of a “reporting” period, i.e. the period, for which the consolidated financial statements are prepared (if the tax/accounting period of the member entities differs from the reporting period, this should be recalculated in the same way as for the consolidated financial statements),
  • clarification/limitation of the definition of a non-significant member entity (a member entity with revenue greater than EUR 50 million cannot be considered non-significant),
  • specification of consolidated annual revenues for the threshold of EUR 750 million,
  • clarification of the definition of an investment entity,
  • introduction of a new medium-term decision on the inclusion of all profit shares,
  • extension of the decision to apply the taxable profit split method to an insurance investment entity in addition to an investment entity,
  • determination of rounding percentages,
  • the highest parent entity is obliged to submit Czech top-up tax return if there is no low-taxed Czech entity within the group and no low-taxed Czech member entity has made excessive profits,
  • the information report for the Czech top-up tax will be required to be filed by the taxpayer of the Czech top-up tax, the information report for the attributed top-up tax will be required to be filed by the taxpayer of the attributed top-up tax (in both cases, regardless of whether they are low-taxed taxpayers or taxpayers without excessive profits), however, there are still exceptions from filing information reports, but the tax administration must be notified within the deadline for filing the report that the information report is filed by another member entity of the group,
  • introduction of the possibility of a corrective information report and an additional information report in compliance with the provisions of the Code of Tax Procedures,
  • application of the 4-year period for determining the tax only to the Czech top-up tax (not to the attributed top-up tax),
  • extension of the provisions relating to the group’s entry period also to transactions similar to asset transfers,
  • specification of transitional safe harbour rules (based on the information contained in the country report),
  • addition of permanent safe harbour rules – ordinary profits, small scale, effective tax rate (for insignificant entities based on simplified calculations),
  • addition of hybrid arbitration arrangements to prevent abuse and minimise potential tax losses or inconsistencies in tax systems,
  • addition of transitional provisions for the mixed regime of taxation of controlled foreign companies.

It is planned to be effective from the very beginning, i.e. from 31 December 2023. However, the amendment is currently at the beginning of the legislative process and the final wording may change.

Please do not hesitate to contact us if the issue of top-up taxes concerns you. We will be happy to discuss the details and possible impacts on your group.