The Czech Republic is going through a political crisis which has jeopardised stability in the country. With threats of resignation by Prime Minister Bohuslav Sobotka following a dispute with former Finance Minister Andrej Babiš, the country is scheduled to hold parliamentary elections in October 2017.
Despite this, foreign direct investment projects more than doubled in the Czech Republic in 2016. The Central European country was one of the top growth performers in Europe.
A key tax trend has been the tax authorities' increasingly restrictive collection methods. There is an enhanced focus on securing measures, which can be used before tax liability is known and before a review is closed by tax officials.
"The misuse of securing orders is currently a hot topic," said Daniel Weinhold, partner at Weinhold Legal. "When the tax administration assesses tax, it can issue security orders, seize assets, and take money from bank accounts. There can be continuous tax disputes."
"We represented an oil company in a related, significant case. The company was deprived of oil assets and the case was debated in Parlament České republiky, our parliament. Now this year, the Supreme Administrative Court decided the tax administration was wrong and this was quite significant, because when the businesses' assets are seized and sold in auction, it's difficult to resolve," Weinhold said.
Weinhold said more audits are occurring in the Czech Republic, in line with international trends. The number of tax audits in 2016 has more than doubled since 2013, and there were 630 audits in the first three quarters of 2016, in contrast to 282 audits for the whole year of 2013.
"We've seen a very dramatic change in the approach of the authorities," said Marek Romancov, partner at Deloitte. "Historically there were no tax audits, if there were any they would focus on very routine, simple issues. What we see now is [a] significant increase. The approach is much more complex and aggressive."
But while the total secure amount collected by tax authorities is declining, the total number of security orders is rising, said Weinhold.
Tax officials are allowed to collect what they think is due, but following appeals and administrative court decisions, the correct amount could turn out to be less.
"They actually confirmed tax could be just 10%, or zero. There were several instances of good companies destroyed this way," Weinhold added.
Romancov highlighted that despite the tax authorities' increase in activity, the country still had a long way to go before achieving quality legislation.
"On one hand you have aggressive tax authorities, but then you have vague legislation which gives you an opportunity to interpret things how you want, as well as inexperienced judges," said Romancov. "On a whole, this creates a very uncertain environment. We have seen many clients facing expensive audits, in terms of time, cost and ultimately the adjustments, which can range from €10 million ($11.8 million) to €200 million."
Weinhold said there are a few months now before the election where anything could happen. "The new finance minister said he would explain why and how securing orders are used. The election will have some influence. Maybe the tax administration will be more careful before the election."
Ernst & Young, s.r.o.
Na Florenci 2116/15
110 000 Prague 1
Tel: +420 225 335 111
Country Tax Leader
Tel: +420 225 335 310
Law Leader, Weinhold Legal
Tel: +420 225 385 336
Business Tax Services
Tel: +420 225 335 360
Tel: +420 225 335 504
Global Compliance and Reporting
Tel: +420 225 335 177
People Advisory Services
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Tel: +420 225 335 625
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International Tax Services
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WTS Alfery s.r.o.
Václavské náměstí 40
110 00 Praha 1
Auditor, tax advisor, partner
Phone: + 420 221 111 777
Main areas of focus:
Legal service: Corporate law, Mergers and Acquisitions
Tax services: Ongoing tax advice, Tax returns
Audit and Accounting services
|Corporate Income Tax||19%||A|
|Net Operating Losses (years)|
|Dividends||15%||C D E|
|Interest||15%||C E F G|
|Royalties from, for example, patents, know-how||15%||C E G H|
A) Basic investment funds are subject to tax at a rate of 5%. The preferential treatment will be available for Liechtenstein residents as of the date of legal effectiveness of the Czech Republic-Liechtenstein tax treaty. A 0% rate applies to pension funds.
B) Capital gains derived by Czech or EU/EEA parent companies on transfers of shares in their subsidiaries are exempt from tax if certain conditions are satisfied. The preferential treatment will be available for Liechtenstein residents as of the date of legal effectiveness of the Czech Republic-Liechtenstein tax treaty.
C) The rates may be reduced by applicable tax treaties.
D) Dividends are subject to a final withholding tax at a rate of 15%. Under the principles of the EU Parent-Subsidiary Directive (No. 90/435/EEC), dividends paid by Czech companies to parent companies (as defined in the directive) located in EU/European Free Trade Association (EFTA) countries are exempt from withholding tax if the parent company maintains a holding of at least 10% of the distributing company for an uninterrupted period of at least one year. The preferential treatment will be available for Liechtenstein residents as of the date of legal effectiveness of the Czech Republic-Liechtenstein tax treaty. Dividend distributions between two Czech companies are exempt from tax under similar conditions. Effective from January 1 2014, the tax exemption does not apply if any of the following circumstances exists:
E) The 35% withholding tax generally applies to Czech-source income arising to Czech tax non-residents from countries outside the EU/EEA that have not entered into a double tax treaty with the Czech Republic or a bilateral or multilateral tax information exchange agreement that is binding on both the Czech Republic and the respective foreign country. The 35% withholding tax rate also applies if the Czech income payer is unable to prove the tax residency status of the respective beneficial income owner. If applicable, the 35% rate affects all types of income subject to withholding tax (for example, dividends, interest, royalties or rental income). It does not affect rental income from financial leases if the 5% withholding tax rate applies
F) Interest payments are subject to withholding tax at a rate of 15%. Under the principles of the EU Directive 2003/49/EC, interest paid by Czech companies to related companies (as defined in the directive) located in EU/EFTA countries is exempt from withholding tax if certain additional conditions are met. The preferential treatment will be available for Liechtenstein residents as of the date of legal effectiveness of the Czech Republic-Liechtenstein tax treaty.
G) For each type of income, EU/EEA tax residents may choose to include the income in their tax return and have it taxed at the standard corporate income tax rate after deduction of associated expenses (while claiming a credit for the withholding tax paid against tax liability stated in the tax return) or they may choose to treat the withholding tax as a final tax on the income.
H) This withholding tax applies to nonresidents. Under the principles of EU Directive 2003/49/EC, royalties paid by Czech companies to companies located in EU/EFTA countries are exempt from tax if certain additional conditions are met. The preferential treatment will be available for Liechtenstein residents as of the date of legal effectiveness of the Czech Republic-Liechtenstein tax treaty.
Key contacts and co-heads of Allen & Overy's tax department are senior tax advisers Michal Dušek and Radek Novotný. The practice has been present in Prague since 1992. Clients benefit from the firm's international setup and insight into cross-border tax matters.
The firm has expertise in banking and financial services, capital markets, environment and regulatory taxation issues, corporate M&A, litigation and dispute resolution, cross-border planning, financial products, spinoffs, divestitures, real estate, structured finance, litigation and transfer pricing.
A key contact at BDO is partner Ondrej Snejdar. The firm has a presence in Brno, České Budějovice, Ostrava, Plzeň and Prague. The firm provides a full range of tax services to clients, who also benefit from BDO's international network.
Partner Eric Davoudet and tax adviser Petr Šebesta are key contacts at Clifford Chance's office in Prague, which opened in 1995. The practice comprises four partners and 40 additional professionals. The firm works with domestic, regional and international clients.
Šebesta has advised Citibank on tax issues related to the sale of its Czech Republic-based retail, banking and credit card companies to buyer Raiffeisenbank.
Partner Jaroslav Škvrna is the head of tax at Deloitte in the Czech Republic. The tax team comprises 13 partners and 267 other professionals. Six professionals joined the department in the past year.
Professionals provide services within the areas of indirect tax, transfer pricing, corporate tax, personal taxation, accounting and payroll.
The firm serves industries such as the automotive; life sciences and healthcare; technology, media, and telecommunications (TMT); retail; banking and finance; and energy sectors, and in various aspects of manufacturing.
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The Dentons practice in Prague was established in 1991. The tax team is headed by partner Petr Kotáb. He focuses on international taxation, direct taxes and tax planning of cross-border transactions. He works alongside associates Jan Hrivnák and Lukáš Kutílek.
The full-service law firm has a team of 57 practitioners, including 12 partners. Services include assistance in M&A, real estate, banking and finance, insolvency, restructuring and bankruptcy.
Clients include both domestic and foreign corporations, as well as international and global companies such as banks and financial institutions, real estate companies and private equity/venture capital companies.
Partner Libor Fryzek is a key contact at EY and has been with the practice since 2002. The firm represents local and international clients in a broad range of tax matters, including global tax services, country tax advisory, cross-border tax advisory, global trading, compliance and reporting, private client services, accounting, performance advice, tax policies and controversy, transaction, VAT, GST, transfer pricing and operating model effectiveness. Clients benefit from EY's international network of experts.
David Pirner is the founding partner of IB Grant Thornton, which was established in 2002. Gabriela Hoppe is the head of tax advisory services and an executive directive of the company. Hoppe has worked for the practice since 2011. She has worked in tax for more than 20 years and has a Big 4 background.
Clients benefit from the firm's international network and broad range of tax services including advisory, auditing and assurance, business process solutions, valuation, tax strategy planning and international taxes.
Kocián Šolc Balaštik's tax team in Prague is led by tax partner Helena Navrátilová, who joined in 1995 and has a Big 4 background. She works with a team of five tax professionals.
Navrátilová and tax adviser Jan Černohouz assisted Rockaway Travel SE and Invia in June 2017 in a $90 million corporate tax matter. The firm advised on the acquisition of assets from German travel services group UNISTR. The transaction involved various types of assets and tax considerations, including transfer pricing.
The firm's services include assistance in cross-border tax aspects of international holding structures and business restructuring, M&A, unit fund and pension fund investments, private equity investments, recognition and taxation of permanent establishments, taxation of intangibles including software, personal income taxation of Czech residents and non-residents, including income earned through foreign and local tax transparent entities and real estate income and royalties.
Daniel Szmaragowski is the head of tax at KPMG. Szmaragowski joined the firm in 2000 and was promoted to director in 2014.
The team offers a full range of services to clients locally and globally, including in the areas of income tax and expatriate services, corporate taxation, investment incentives, subsidiaries and deductions, M&A, transfer pricing, inspections and disputes, international taxation, VAT and customs duties.
A key contact at PwC is partner Zuzana Vaněčková, who works in the tax and legal department.
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White & Case's tax team is headed by partner Jan Pařík. He works alongside four other professionals, two of whom joined the firm in the past year.
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Associate Jakub Zavadil and tax consultant Milan Horák are advising an overseas entity that operates as an integrated telecommunications operator across several European countries.
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One client said: "I was and I am still very happy with the service I received. This partnership started like a short-term one and became a long-term partnership, because I was exceptionally happy with the services that W&C is providing. In addition to corporate use, I have started to use their services as a private individual for consultations regarding my personal tax and legal questions. I have recommended them on several occasions. They tend to continuously stay in touch with us, so their information about us is up to date and they can be more responsive when we are seeking advice."
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Alfery and partner Pavel Hrdina are advising Pfeifer Beteiligungsverwaltung GmbH, an Austria-based construction materials company, in a $22 million corporate tax matter.
One client said: "Our company has been working and cooperating with WTS Alfery for 20 years because we have the best experiences with them. We have always received top-ranking professional support in the required time. WTS Alfery has a lot highly skilled experts and specialists who are always able to help us with their extensive knowledge."