A common trend across Central and Eastern Europe, which the Czech Republic has been firmly onboard with, has been the implementation of measures aimed at clamping down on VAT carousel and missing trader fraud. There have been several legislative measures at the EU level aimed at harmonising VAT rules across the single market as well as reducing instances of this kind of fraud and the burden it places on taxpayers in terms of extra compliance costs.
Progress on this front has been slow due to the need for unanimous approval from member states for any reform. This means the interim VAT system of the EU that was launched in 1993 is still in use, leaving taxpayers with the increasing burden of managing member states' differing domestic regulations and anti-fraud measures.
In the Czech Republic the VAT control statement was introduced on January 1 2016, which has created an obligation for taxpayers to submit a special form every month, stating every VAT number of the receipt they are deducting or invoicing
"This has to be inputted into a special tool, which allows the revenue to see who is doing business with whom, and we have a lot of work arising from this issue, because sometimes there are normal manual mistakes in the inputs, but also issues arising when taxpayers want to deduct the VAT in different tax periods," said Jana Alfery of WTS Alfery. "It creates a lot of work," she added.
The VAT control statement does not replace VAT returns, which still have to be filed as usual. This, obviously, creates extra work for taxpayers, although smaller taxpayers only have to submit the statement every quarter instead of every month.
The Czech tax authorities say the statement is an effective tool for reducing incidents of tax evasion and VAT fraud, but advisers are concerned it simply increases the compliance burden for taxpayers and increases the risk of litigation.
"If there is even some small discrepancy between the two, then both taxpayers are asked to amend this or explain the difference, we are yet to see this reflected in the area of litigation, as there is obviously a time delay for these things," said Daniel Weinhold, a partner at Weinhold Legal. "An increase in litigation as a result is something that we expect to see in future."
It is near-impossible to obtain advance rulings on tax matters in the Czech Republic in most instances. The scope of questions on which it is possible to approach the tax authorities, and be provided with a tax ruling upfront, is very narrow, according to Weinhold.
"Generally, and unfortunately, the opinion of the tax authorities is only usually obtained during a tax audit, or upon review of a tax return – even if the tax inspector wanted to, even informal discussions are not allowed," he said.
The Czech government's attention, so far as fighting tax evasion goes, is focused almost single-mindedly on VAT.
This was reflected in a statement Andrej Babiš, the Czech finance minister, made to the EU's ECOFIN on June 17 2016: "Immense political capital has been expended on the fight against corporates and individuals avoiding paying taxes – I want to fight VAT fraud with the same determination and pace."
Alongside the focus on VAT, the government has made some progress on implementing BEPS proposals into its domestic legislation. The legislation to disallow hybrid structures was introduced to retroactively apply from January 1 2016, and the country has signed the multilateral agreement for the automatic exchange of country-by-country reports, the first of these is expected to take place in September 2017.
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|Corporate Income Tax||19%||A|
|Capital Gains Tax||0%||19%||B|
|Net Operating Losses (years)|
|Dividends||1%||15%||35%||C D E|
|Interest||1%||15%||35%||C E F G|
|Royalties from, for example, patents, know-how||0%||15%||35%||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:
• The parent company or the subsidiary is exempt from corporate income tax or similar tax applicable in its jurisdiction.
• The parent or subsidiary may opt for an exemption from corporate income tax or similar tax applicable in its jurisdiction.
• The parent or subsidiary is subject to zero corporate income tax or similar tax applicable in its jurisdiction.
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.
Allen & Overy is an international law firm with offices across Europe and the world. In the Czech Republic, a key contact is Radek Novotný, a senior tax adviser based in the firm's Prague office. He, along with Michal Dušek, co-heads the tax department.
The firm offers its domestic and international clients all the key aspects of tax advisory as well as dispute resolution and litigation services.
Allen & Overy was well regarded by its peers in the jurisdiction.
Baker Tilly offers services in audit, financial accounting, tax advisory and tax legal services as well as risk management consultancy. It also helps clients preparing VAT returns and assists them during audits, disputes and litigation, alongside its consultancy services and transfer pricing offerings.
A key contact at the firm is Lucie Vilkusová, a tax adviser who has been with the firm for four years. She, along with the rest of the team at Baker Tilly, advises Czech domestic and international companies as well as multinational groups on a broad range of tax and transfer pricing issues.
Professionals at Clifford Chance work alongside colleagues who specialise in different disciplines in an effort to deliver a fully integrated tax service.
The firm specialises in banking and finance taxation, where its professionals have particular experience in the implications of extra-territorial taxation legislation such as the US financial account tax compliance act (FATCA) and the EU's proposed financial transaction tax (FTT).
As well as capital markets and structured debt tax, the firm has particular expertise advising on securitisations, debt and equity capital markets and derivatives.
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Deloitte's tax practice is headed by Jaroslav Škvrna, who leads a team of 124 professionals engaged in delivering tax services to domestic and international clients. Of the 124 employees, 29 work in indirect tax, 55 work in corporate tax advice, 10 work in tax disputes and litigation and 30 work in tax compliance and accounting.
Deloitte has offices in four Czech locations: Prague, Brno, Ostrava and Plzen the team offers a full tax and transfer pricing service, and can assist in everything from routine documentation advice to complex tax structuring aimed at minimising risk and tax exposure.
Many of the firm's clients come from the manufacturing, fast-moving consumer goods (FMCG), healthcare and pharmaceuticals, technology, media and telecommunications (TMT) and financial services, among others.
Dentons in the Czech Republic offers clients a full tax service. A key contact at the firm is associate Boris Tregler who focuses on financial and tax law, in particular dispute resolution including litigation and arbitration.
The team offers tax and legal services to local and international companies and multinational groups, across a range of industries. A key branch of the firm's work is offering expertise in tax structuring and dispute resolution.
A key contact at EY in the Czech Republic is Libor Fryzek, who is a tax partner specialising in international tax, tax advisory, due diligence and transfer pricing. EY represents local and international companies and multinational groups covering the full range of tax and transfer pricing services.
IB Grant Thornton's managing partner Helmut Hetlinger leads the firm's tax department, collaborating with Gabriela Magsumová, head of tax advisory, and Olga Krnácová, head of tax compliance.
The firm offers a full tax service, taking everything from routine tax documentation functions to offering advice in the process of negotiations and litigation concerning the tax authorities.
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Having been established in 1990, the firm offers services in tax dispute resolution and litigation, international holding structures, VAT and other indirect taxes, as well as advising on the tax implications of M&A deals.
KPMG's key contact in the Czech Republic is Daniel Szmaragowski, who is the director of tax services for the firm in the jurisdiction and previously worked as a tax manager. Szmaragowski specialises in corporate income tax issues for large industrial trade companies and multinational groups. He leads a team with skills in all areas of domestic and international tax and transfer pricing.
Szmaragowski and his team were well spoken of by peers in the Czech Republic.
PwC in the Czech Republic subdivides its tax services into corporate tax, indirect tax, international assignments, tax-effective remuneration, representation during tax authority disputes, court proceedings and negotiations as well as more routine functions such as auditing, payroll and bookkeeping services.
The team was praised by peers in the jurisdiction and its clients include large multinational groups, international companies and domestic Czech companies.
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White & Case's head of tax, Aleš Zídek, leads a team that focuses mainly on transactional tax issues. However, the firm can advise on a wide array of tax matters for its clients, which include domestic Czech companies, international companies, individuals and multinational groups in the financial services, manufacturing, energy and natural resources industries, among others.
WTS Alfery has 32 professionals working on a broad range of tax and transfer pricing issues. Nine work in indirect tax, six work in corporate tax, two work in tax disputes and 15 work in tax compliance and accounting.
A key contact at the firm is Jana Alfery, the firm's managing partner. This year, Alfery and two other professionals, Roman Pechacek and Hana Sohrova, conducted tax and due diligence for an institutional investor operating in the area of real estate, obtaining substantial tax savings through tax optimisation restructuring.
The firm represents clients in the IT, energy and utilities, manufacturing, healthcare and pharmaceuticals, FMCG and financial services sectors among others. Its clients include multinational groups as well as Czech and international companies.