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News Implementation of ATAD into ITA Amendment

In the coming months the EU member states will have to implement the ATAD (Anti-Tax Avoidance Directive) into their national law. The Directive is already included in the forthcoming amendment to the Income Tax Act; large enterprises are those who should now be alert, as the new regulation will in most cases apply to them. 

 

The excessive borrowing costs will be now tax deductible only up to the amount of CZK 80 million or 30 % EBITDA. The definition of borrowing costs is also included in the Amendment: Apart from the obvious transactions (loans, etc.), the borrowing costs are e.g. exchange rate differences related to certain liabilities, interest rates included in the acquisition of assets or leasing interest. The amount of expenses not deducted may at least reduce the future tax base by being carried forward to next taxable periods. These rules will not apply to exempted subjects specified by the law (financial institutions).

 

A so-called Exit Tax will now be introduced to the Czech Republic. Assets permanently transferred to abroad without a change in ownership (e.g. to a permanent establishment – then the profit arising from these assets will be taxed abroad), will be taxed in the Czech Republic using a method similar to the sale of this asset to an independent person. 

 

The amendment will also deal with the hybrid mismatches in transactions among associated entities.  These are the situations when one tax effective expense can reduce the tax base of two or more associated entities with registered office in different countries. The Amendment is aiming to prevent such practices.

 

The Amendment should start effecting taxpayers from 2019/2020 on.  As this is the very first draft, we will keep you informed on its future changes and development.

 

Lukáš Jirsa

Tax Consultant

D +420 296 152 243

E lukas.jirsa@cz.gt.com