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APRIL / 2015Tax and Legal Update / KPMG Czech Republic 1
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TAX NEWS
LEGAL NEWS
INTERNATIONAL NEWS
CASE LAW
TAX ANd LEGAL UPdATE 04
APRIL / 2015Tax and Legal Update / KPMG Czech Republic 2
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Daniel Szmaragowskidirector
Tax Advisory
TAX NEWS
/ Tax crime and punishment?
/ GFd on reverse-charge mechanism
/ Methodological guideline on electronic submissions
/ News on VAT ledger statements
/ Operational Programme news
LEGAL NEWS
/ Consumer credit agreements revisited
/ Restriction of agency employment
INTERNATIONAL NEWS
/ Tax Transparency Package
/ Global exchange of information
CASE LAW
/ Allocation of profit to permanent establishments
/ The abuse of law in chain transactions
Introduction by Daniel Szmaragowski
Dear readers,
The whims of nature we were subjected to in the first week of April helped us perfectly understand what April weather really means. Prior to the General Financial directorate’s issu-ance of methodological guidance, the information from the tax administration on e-filing of tax returns and relevant attachments was similarly erratic. The GFd has finally provided us with a comprehensive view on the matter on a nation-wide basis. Another important system change is the introduction of VAT ledger statements, which were no April Fools’ jokes but are to be implemented into the bureaucratic Czech business environment already from 1 January 2016. Let’s hope that the prescribed forms, definitions and related instructions will be consi-stent and unambiguous from the very beginning so that we can all prepare ourselves well in advance, without the need to address this issue again in december as so many times before.
Inspired by an April snowstorm, we’ve decided to surprise you and dramatically change the form of our Financial Update. We’re not only changing the name, as from now on it will be the Tax and Legal Update, but also the content of columns. We’re adding new components and functionalities and introducing a navigation menu for better orientation in the text. We hope that you’ll enjoy our innovations!
APRIL / 2015Tax and Legal Update / KPMG Czech Republic 3
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TAX NEWS
Tax crime and punishment?
The Czech highest courts appear to be changing their approach towards sanction mechanisms embedded in the Tax Procedure Rules. Judges seem to have changed their thinking and function as a stimulus for change. This is good news regardless of whether it will really bring a new direction for the courts or whether this will prove to be only a temporary phenomenon.
We have become accustomed to the tendency of the Supreme Administrative Court (“the SAC”) in its case law to uncritically accept the system of penalties and sanctions imposed on taxpayers for failures to fulfil tax duties by the Act on Administration of Taxes and Char-ges and the Tax Procedure Rules created by the legislator. A few years ago, for example, we learned from the Court’s case law that penalties amounting to 18.25%, 36.5% or 73% a year prescribed by the Act on Administration of Taxes and Charges and effective until 2006 were neither liquidating nor extortionate and thus, according to the Court, should not be considered in disagreement with economic reality.
In its past decisions the SAC also repeated several times that tax penalties, including pe-nalties imposed from 2007 as a single amount determined by a fixed percentage (which existed separately in addition to default interest), do not have the nature of punishments for taxpayers. As a result, general principles for the punishment of individuals would not need to be taken into account when imposing these penalties. Now, however, it seems that the SAC’s fourth panel of judges, whose primary specialisation have so far been decisions in pension-related cases, may come up with some new ideas in this respect. This panel of judges voiced a slightly different opinion on punishment, claiming that a penalty is a kind of punishment for those who in their tax statements did not declare the full truth about their tax liabilities (for more details see decision No. 4 Afs 210/2014-28 of 19 February 2015). This view does not correspond with the opinion that has so far been presented by the SAC and, consequently, a consensus will have to be reached by the extended panel of SAC judges.
Without anticipating the approach of the extended panel of judges, let us now look at how beneficial it would be to treat penalties as punishment. If the tax administrator wanted to punish “sinners”, it would always have to proceed according to certain principles pertaining to substantive as well as procedural law. One of these basic principles is, for example, the duty of a body making a decision to apply a more recent legal regulation if this is more be-neficial for the taxpayer. In the particular case shortly to be discussed before the extended panel of SAC judges, the taxpayer in question may actually gain the right to ask for a lower penalty for decreasing tax losses for 2008, as the Tax Procedure Rules introduced a 1% in-stead of a 5% rate prescribed by the previous Act on Administration of Taxes and Charges. However, the transitory provisions of the Tax Procedure Rules do not enable the use of less strict sanctions before 2010.
However, it is not clear whether tax transgressions under the Tax Procedure Rules should be subject to all principles governing punishment. The SAC’s fourth panel of judges indicates, for example, that tax penalties do not require the application of a principle based on which the body making a decision has to examine specific circumstances under which duties have been violated, thus assessing a penalty on an individual basis. The penalty is, according to the fourth panel, determined by law as a fixed amount for all taxpayers. When considering the inapplicability of major principles pertaining to punishment (i.e. especially an option for moderate punishment), the question is whether the potential treatment of tax penalties as a kind of punishment would not be just a formality. The only possible way to moderate the punishment of taxpayers who otherwise fulfil their duties in a due manner would thus be the possibility to remit part of the imposed penalties, an option introduced effective from 2015. However, as already discussed in a previous issue of Financial Update, the conditions under which it is possible to remit penalties have not really been set to favour taxpayers.
TAX NEWS
/ Tax crime and punishment?
/ GFd on reverse-charge mechanism
/ Methodological guideline on electronic submissions
/ News on VAT ledger statements
/ Operational Programme news
LEGAL NEWS
/ Consumer credit agreements revisited
/ Restriction of agency employment
INTERNATIONAL NEWS
/ Tax Transparency Package
/ Global exchange of information
CASE LAW
/ Allocation of profit to permanent establishments
/ The abuse of law in chain transactions
APRIL / 2015Tax and Legal Update / KPMG Czech Republic 4
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In connection with this, we would like to draw attention to another even bolder approach to tax penalties adopted by the Municipal Court in Prague in one of its recent cases. The Municipal Court directly submitted a motion to cancel the penalty for a delay in filing a tax statement to the Constitutional Court despite the fact that this type of penalty is by law determined by a fixed daily rate without any need to study the specifics of a particular case. The Municipal Court apparently came to consider the penalty as inadequate after taking into account the circumstances of the particular taxpayer.
It seems that the courts no longer intend to blindly accept the Tax Procedure Rules and do not plan to justify why this legal regulation is in compliance with all legal and constitutional principles. The above cases throw further doubts about the correctness of the ongoing automatic application of rigid interpretations. Let us hope that the discussion at the Consti-tutional Court or at the SAC’s extended panel of judges will bear fruit.
It is nevertheless a good sign that some judges have begun to question whether the legal regulation of tax penalties and sanctions makes sense and meets its purpose. As a result of the increasingly strict approaches and interpretations held by the tax authorities the courts very often have to adjudicate on taxpayers who incorrectly reported their tax liabilities me-rely in consequence of an incorrect interpretation of relatively complicated tax rules but who have otherwise duly fulfilled their tax duties. The courts seem to have realised that tax sanctions should more often be imposed on an individual basis, treating taxpayers separate-ly and not lumping them together as one bunch of tax criminals. The opinions of the SAC’s fourth panel of judges and the Municipal Court’s motion filed with the Constitutional Court may be seen as a certain move away from the existing interpretation of tax penalties held by the administrative courts.
Alena Švecová[email protected]
T: +420 222 123 618
Eva Doložílková[email protected]
T: +420 222 123 696
TAX NEWS
TAX NEWS
/ Tax crime and punishment?
/ GFd on reverse-charge mechanism
/ Methodological guideline on electronic submissions
/ News on VAT ledger statements
/ Operational Programme news
LEGAL NEWS
/ Consumer credit agreements revisited
/ Restriction of agency employment
INTERNATIONAL NEWS
/ Tax Transparency Package
/ Global exchange of information
CASE LAW
/ Allocation of profit to permanent establishments
/ The abuse of law in chain transactions
APRIL / 2015Tax and Legal Update / KPMG Czech Republic 5
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GFD on reverse-charge mechanism
The GFD’s information clarifies uncertainties regarding the extended application of the reverse-charge mechanism to selected domestic taxable supplies from 1 April 2015. It provides information on the VAT treatment of advances received before the introduction of the reverse-charge regime and on the procedure to follow when the value of delivered goods changes after the receipt of advance payments. It also specifies rules for correcti-ons of tax bases. The new rules, however, complicate the situation even further.
In March 2015, the Financial Administration published the General Financial directorate’s information on the application of a reverse-charge mechanism on selected supplies in 2015 and 2016 (http://www.financnisprava.cz/assets/cs/prilohy/d-seznam-dani/Informace-k-aplikaci-rezimu-preneseni-danove-povinnosti-2015-2016.pdf). For more information please also see the January issue of Financial Update. Below we summarise the most important facts included in the GFd’s information. It is, however, quite obvious that to apply the correct VAT regime VAT payers will have to carefully examine each individual transaction involving selected commodities.
disputable classification of taxable supplies
If it cannot be ascertained with respect to the nature of a particular supply whether or not the conditions for the application of a reverse-charge regime will be fulfilled and both the provider and the recipient act in concert based on a reasonable presumption and apply the reverse--charge mechanism, the legal fiction that the supply at issue is subject to the reverse-charge regime will apply. When in doubt whether certain goods are subject to the reverse-charge or a standard regime, it is still possible to apply for a tax ruling.
Advance payments received before the introduction of the reverse-charge mechanism
When applying the reverse-charge mechanism, the recipient of a taxable supply must declare VAT as at the date of supply while not taking into account any advance payments made before this date. If an advance payment for the selected commodity was received before the date of supply and simultaneously before the effective date of the new reverse-charge mechanism regu-lation, and this advance payment gives rise to the duty to declare VAT but the taxable supply was effected after the reverse-charge mechanism was introduced, the reverse-charge regime will not be applied retrospectively to the advances received. The tax base to which the reverse-charge mechanism is to apply will be calculated based on a general rule under Section 37a of the VAT Act. The reverse-charge regime will only be applied to potential additional VAT payments.
How to assess the total tax base
The reverse-charge mechanism applies to the supply of selected commodities if the total tax base of all delivered goods exceeds the limit of TCZK 100 per one delivery. If there are several types of goods subject to the reverse-charge regime stated on a tax document, the tax bases applicable to these various types of goods will be added up to determine whether the limit has been reached. In a report extracted from VAT records, however, the individual types of goods must be stated separately under relevant codes. The reports extracted from VAT records (výpis z evidence pro účely dPH) will be replaced by VAT ledger statements (kontrolní hlášení) from 1 January 2016.The Financial Administration also warns against avoiding the application of the reverse-charge mechanism and against artificially splitting the tax base of one supply (which would exceed the limit for the application of the mechanism) into several taxable supplies whose tax bases do not
TAX NEWS
TAX NEWS
/ Tax crime and punishment?
/ GFD on reverse-charge mechanism
/ Methodological guideline on electronic submissions
/ News on VAT ledger statements
/ Operational Programme news
LEGAL NEWS
/ Consumer credit agreements revisited
/ Restriction of agency employment
INTERNATIONAL NEWS
/ Tax Transparency Package
/ Global exchange of information
CASE LAW
/ Allocation of profit to permanent establishments
/ The abuse of law in chain transactions
APRIL / 2015Tax and Legal Update / KPMG Czech Republic 6
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reach the limit of TCZK 100. If, in such a case, the supplier does not pay VAT on output, the tax authority may consider this an intended circumvention of the VAT Act and may question the related customer’s entitlement to a VAT deduction.
Advance payments
To apply the reverse-charge regime correctly, it is necessary to know beforehand the total agre-ed value of the selected goods. To determine whether the limit has been met, advance pay-ments will not be assessed separately but only with respect to the overall value of the supply. If the total value of the supply exceeds TCZK 100, the reverse-charge mechanism will also be applied to the received advances. If the total value of the supply does not exceed the limit, a standard VAT regime will apply.
In practice it may happen that the total value of delivered goods agreed beforehand is expected to exceed the limit (i.e. the supplier would not pay VAT on received advance payments) but in reality may end up being lower than the limit as a result of the customer having adjusted the order. In such a case, a standard VAT regime will apply, including any advances that were not taxed in the tax base. The supplier will have to be able to prove to the tax authority that the original order exceeded the limit and that this was the reason why he did not have to tax the received advance payments.
It may also happen that the supplier declares VAT on a received advance payment in the expecta-tion that the total value of an order will not exceed the limit of TCZK 100. In reality, however, the total value of the order exceeds the limit as at the date of supply. In this case, the reverse-charge mechanism will not be retrospectively applied to these advances (i.e. the same approach as in the case of advances received before the effective date of the new reverse-charge mechanism regulation will be used).
Tax base corrections
When correcting the tax base relating to supplies exceeding the limit of TCZK 100, which are thus subject to the reverse-charge mechanism, it is necessary to apply the reverse-charge regi-me regardless of the amount of correction. If the original tax base is corrected and this correc-tion decreases the tax base below the limit of TCZK 100, the VAT regime applied before the correction remains unchanged even after the correction.
When the correction of the tax base relating to the supplies taxed at a standard VAT regime results in an increase of the tax base, it is necessary to examine the total tax base amount after the increase. If the new total tax base exceeds the limit of TCZK 100, this correction (i.e. the increased part of the tax base) will be regarded as a supply subject to the reverse-charge mechanism. The VAT regime applied to the original tax base will not be adjusted retrospectively.
Quantity bonuses and other discounts provided with respect to the volume of purchased goods are often used in practice. These may relate to the supplies of commodities subject to either a standard VAT regime or the reverse-charge mechanism. According to the GFd, in these cases it will be possible to choose the tax base correction method (i.e. the standard VAT regime or the reverse-charge regime) based on an agreement between the supplier and the customer.
Veronika Jašová[email protected]
T: +420 222 123 754
Šárka Hakrová[email protected]
T: +420 222 124 258
TAX NEWS
TAX NEWS
/ Tax crime and punishment?
/ GFD on reverse-charge mechanism
/ Methodological guideline on electronic submissions
/ News on VAT ledger statements
/ Operational Programme news
LEGAL NEWS
/ Consumer credit agreements revisited
/ Restriction of agency employment
INTERNATIONAL NEWS
/ Tax Transparency Package
/ Global exchange of information
CASE LAW
/ Allocation of profit to permanent establishments
/ The abuse of law in chain transactions
APRIL / 2015Tax and Legal Update / KPMG Czech Republic 7
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Methodological guideline on electronic submissions
The General Financial Directorate issued an internal methodological guideline which summarises the rules on mandatory electronic submissions, interprets related legal provisions and discusses certain ambiguous situations arising as a result of the new regulation. The General Financial Directorate advises that the duty to make electronic submissions in the required format also applies to attachments to tax returns (including financial statements).
In principle, the duty to submit selected documents electronically with effect from 1 January 2015 concerns all Czech corporations and branches of foreign corporations (besides other enti-ties), as covered in past issues of Financial Update. These entities are required to adhere to the electronic format mandated for selected types of tax forms specified by law, such as applicati-ons for registration, notifications of changes in the registration data and all tax statements (tax returns, tax reports and other tax settlements).
The methodological guideline issued by the General Financial directorate (GFd) to unify me-thods to be used by tax authorities includes a detailed description of criteria under which tax entities are required to make e-submissions and a list of submissions covered by this duty. The guideline also defines how to make electronic submissions to the tax authority and specifies sanctions for a failure to comply.
The guideline lays down how to proceed if the format or structure of a data report has not been published by the submission date (i.e. the form concerned is not available in the application for electronic submissions to the tax administration, the EPO application). In that case, tax authori-ties will accept a data report submitted with a PdF attachment or in paper form.
Yet another ambiguous issue currently discussed by the professional public is how to electro-nically submit attachments to corporate income tax returns, in particular financial statements. The methodological guideline unequivocally specifies that the same rules apply both to the sub-mission of a document and to the attachments that form part of it. In its answers to selected questions on electronic submissions of corporate income tax returns, the GFd adds that the information from the financial statements must also be provided in the format and structure specified by the tax authority in the EPO application, i.e. under item selected information from the balance sheet and selected information from the income statement in the tax return form. Only notes to the financial statements may be attached to the electronic form as an e-atta-chment, e.g. in PdF format.
If an entity submits financial statements as an attachment to an electronic form in PdF format, it will be considered a defective submission and the entity will be called upon to remove the defects in line with general practice.
Information from the financial statements submitted electronically in XML format is yet another piece of information that tax authorities require from taxpayers in a format enabling immediate automated processing. However, the more than significant increase in the administrative bur-den for most taxpayers and their tax advisors in the completion of tax returns constitutes the other, less shiny side of the same coin.
Jana Pytelková Svobodová
[email protected] T: +420 222 123 483
Tomáš Bú[email protected]
T: +420 222 124 293
TAX NEWS
TAX NEWS
/ Tax crime and punishment?
/ GFd on reverse-charge mechanism
/ Methodological guideline on electronic submissions
/ News on VAT ledger statements
/ Operational Programme news
LEGAL NEWS
/ Consumer credit agreements revisited
/ Restriction of agency employment
INTERNATIONAL NEWS
/ Tax Transparency Package
/ Global exchange of information
CASE LAW
/ Allocation of profit to permanent establishments
/ The abuse of law in chain transactions
APRIL / 2015Tax and Legal Update / KPMG Czech Republic 8
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News on VAT ledger statements
The draft VAT ledger statement form with related guidance, published by the General Financial Directorate, reveals what information should be disclosed with respect to individual types of supplies from 1 January 2016. The final version of the VAT ledger statement will be published in April 2015. Taxpayers should thus have sufficient time to prepare themselves for the new tax duty and adjust their accounting systems accordingly.
The General Financial directorate (“the GFd”) has prepared a draft VAT ledger statement form with related completion guidance. VAT ledger statements will have to be filed by all VAT payers from 1 Ja-nuary 2016. This draft version is currently subject to the comment procedure. The final version of the statement should be published on the Financial Administration’s website during the course of April.
VAT ledger statements will have to be submitted by all VAT payers who have effected or received taxable supplies with the place of supply in the Czech Republic, provided or received consideration for such taxable supplies, or traded in investment gold under a special VAT regime. The VAT ledger statement will also show transactions that have been carried out under the reverse-charge regime, which means that from 1 January 2016 VAT payers will no longer have to file an extract from the tax records for VAT purposes under Section 92a of the VAT Act.
VAT ledger statements will have to be filed electronically by all VAT payers irrespective of their status. What information will have to be recorded for VAT ledger statement purposes? The VAT ledger statement will consist of two basic parts: Part A focusing on taxable supplies where the VAT payer must pay relevant tax and Part B focusing on received taxable supplies with the place of supply in the Czech Republic.
Concerning supplies where the VAT payer must declare tax (Part A), the VAT payer has to distinguish between domestic taxable supplies, supplies effected under the reverse-charge mechanism, goods or services acquired from another Member State, and supplies effected under a special VAT regime for investment gold.
Received taxable supplies with the place of supply in the Czech Republic (Part B) will include received supplies subject to the reverse-charge regime and domestic supplies received from VAT payers.
The amounts reported on the individual lines of the VAT ledger statement should correspond to the amounts reported in the VAT return for the relevant period. Not the date on which a taxable supply is effected but the date on which a taxable supply is reported in the VAT return will be decisive for the VAT ledger statement reporting of received taxable supplies where the VAT payer claims entitlement to deduct VAT (VAT payers generally have the right to claim entitlement to a VAT deduction for a period of three years).
A general rule for completing the VAT ledger statement holds that one line in the statement equals one tax document. Simplified tax documents, i.e. documents that do not include the tax identification number of a customer, and supplies for which tax documents need not be issued (e.g. supplies for individuals not liable to VAT) will be reported aggregately on one line, sorted by individual VAT rates. For each individual supply VAT payers will have to provide the following information: the tax identification number of the customer or supplier, the registration number of the tax document, the date of supply or the date on which tax must be paid, the tax base, and the amount of tax (sorted by individual VAT rates). Individual transactions need not be described in words. However, the duty to specify the subject-matter of taxable supplies using special numerical codes remains in application for supplies subject to the reverse-charge mechanism.
Both supplier and customer should state the same registration number of a tax document in the VAT ledger statement, i.e. the number of the tax document provided by the supplier. The VAT ledger statement form should also be able to process non-numeric characters contained in the registration number of a tax document. The current draft version of the VAT ledger statement is likely to change again. We will keep you informed about any further developments in this matter.
Iva Císařová [email protected]
T: +420 222 123 709
Veronika Jašová[email protected]
T: +420 222 123 754
TAX NEWS
TAX NEWS
/ Tax crime and punishment?
/ GFd on reverse-charge mechanism
/ Methodological guideline on electronic submissions
/ News on VAT ledger statements
/ Operational Programme news
LEGAL NEWS
/ Consumer credit agreements revisited
/ Restriction of agency employment
INTERNATIONAL NEWS
/ Tax Transparency Package
/ Global exchange of information
CASE LAW
/ Allocation of profit to permanent establishments
/ The abuse of law in chain transactions
APRIL / 2015Tax and Legal Update / KPMG Czech Republic 9
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Operational Programme news
Are you planning investments to production or R&D innovations? Or would you prefer to finance your company’s energy-saving measures? You will be able to draw EU subsidies for such investments. Read about the current situation and find out when you will be able to register your project and how much you can obtain from the programmes of support.
The first calls under the Operational Programme Enterprise and Innovations for Competitiveness (OP EIC), the follow-up to the previous Operational Programme Enterprise and Innovation (OPEI), are expected to be launched soon.
OP EIC will also include the most favourite OPEI programmes, namely Innovation, Potential, Energy Savings (formerly Eco-Energy) and ICT and Strategic Services. Apart from these, OP EIC introduces a number of new programmes of support that will let large enterprises again draw subsidies. One of the new programmes is called Applications and supports experimental development and applied research activities through subsidies covering operating expenses. A variety of other programmes support energy savings and increases in energy consumption efficiency.
Currently the information published on individual programmes primarily includes only their titles and general information on supported activities and programme terms. Applicants will obtain more detailed information on the qualification requirements and other key programme documents in the official call texts for the individual programmes, which are expected to be published in the second half of April 2015.
The intake of first registration applications for selected programmes will start in summer/autumn 2015 at the earliest. The submission of a registration application is a crucial moment in the whole process, as beginning with the filing date applicants may start working and incurring eligible costs on the project. Elementary support for large enterprises may amount to 25% of eligible costs although total support may reach up to 65% under additional R&d support and energy saving programmes.
We will keep you updated on any further developments in the programmes of support. We are also planning a variety of seminars on these topics in April and May. If you would like more information, please do not hesitate to contact us.
Tomáš Kroupa [email protected]
T: +420 222 123 623
Karin Osinová[email protected]
T: +420 222 123 574
TAX NEWS
TAX NEWS
/ Tax crime and punishment?
/ GFd on reverse-charge mechanism
/ Methodological guideline on electronic submissions
/ News on VAT ledger statements
/ Operational Programme news
LEGAL NEWS
/ Consumer credit agreements revisited
/ Restriction of agency employment
INTERNATIONAL NEWS
/ Tax Transparency Package
/ Global exchange of information
CASE LAW
/ Allocation of profit to permanent establishments
/ The abuse of law in chain transactions
APRIL / 2015Tax and Legal Update / KPMG Czech Republic 10
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LEGAL NEWS
Consumer credit agreements revisited
The Ministry of Finance is drafting an extensive amendment to consumer credit legislation, which is to include, for the first time, also mortgage credits, i.e. credit agreements designed to acquire immovable property or lending secured by immova-ble property. The amendment, which is expected to come into effect by March 2016 according to the EU law, will not only significantly change the provision of mortgage credits by financial institutions but especially the position and duties of non-banking providers and credit intermediaries.
The Ministry of Finance is drafting a new bill on consumer credits to replace the existing consu-mer credit legislation and redefine specific credit types, namely mortgage credits as consumer home loans.
The new legislation, which transposes directive 2014/17/EU of the European Parliament and of the Council and other related EU regulations, is to govern all consumer credits defined as de-ferred payments, monetary loans, credits or other similar financial services provided to consu-mers. The existing minimum and maximum consumer credit limit should be lifted. A consumer home loan means either a credit secured by immovable property or a credit designed to acquire immovable property. Whether this will have to involve only residential immovable property or any immovable property in general is not yet clear.
The new regulation is likely to affect in particular activities of non-banking credit providers and intermediaries. A credit provider that is not a bank will need to have a licence granted by the Czech National Bank (the CNB) and will have to be recorded in the CNB’s registry. Non-bank providers will have to prove they have the professional competence and the material, techni-cal, personnel as well as organisational prerequisites and an internal controls system in place. Credit intermediaries, which will now be subdivided into two categories, i.e. independent inter-mediaries and dependent agents, will also have to be registered. Independent intermediaries will moreover need a licence granted by the CNB.
The right to repay mortgage credit early is one of the key points of the directive. Its provisi-ons do, however, allow national legislations to restrict this right through certain conditions and to confer fair and objective compensation to creditors if consumers opt to take advan-tage of this right. What stance the Czech lawmakers will adopt towards this option so far remains unknown.
Based on the directive, Member States will be required to determine a mandatory reflection period of at least seven days prior to the binding conclusion of any credit agreement. during this period, the creditor’s offer will remain binding for the creditor but the consumer may wi-thdraw from the signed contract without any penalties. The directive also allows for the setting of an at least ten-day reflection period during which consumers would not be allowed to sign a binding agreement. Hopefully, Czech lawmakers will not use this possibility, as such a rule may not always be in the best interest of the consumer.
The new regulation also significantly reinforces the credit providers’ and intermediaries’ obliga-tion to keep the customer informed in all stages of negotiations.
Since the bill is currently going through the comment procedure, the final provisions may still change. The directive, however, stipulates that the Czech regulation should come into effect before March 2016.
Martin Kofroň [email protected]
T: +420 222 123 745
Linda Čechová [email protected]
T: +420 222 123 889
TAX NEWS
/ Tax crime and punishment?
/ GFd on reverse-charge mechanism
/ Methodological guideline on electronic submissions
/ News on VAT ledger statements
/ Operational Programme news
LEGAL NEWS
/ Consumer credit agreements revisited
/ Restriction of agency employment
INTERNATIONAL NEWS
/ Tax Transparency Package
/ Global exchange of information
CASE LAW
/ Allocation of profit to permanent establishments
/ The abuse of law in chain transactions
APRIL / 2015Tax and Legal Update / KPMG Czech Republic 11
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Restriction of agency employment
The Ministry of Labour and Social Affairs introduced a draft amendment to the regulations governing agency employment. It proposes to limit the possibility to conclude fixed-term agency employment contracts to a maximum of three times for three years and aims to restrict the maximum percentage of agency employees working for a single employer to 15%. The draft regulation is expected to come into effect on 1 January 2016.
Agency employment is to undergo major changes in the near future. The Ministry of Labour and Social Affairs has introduced draft amendments to relevant legal regulations that are ex-pected to come into effect on 1 January 2016. The new agency employment provisions are about to introduce a number of changes, the most crucial being the ban on chaining fixed-term employment contracts and a cap on the number of agency employees at a single employer.
The Labour Code currently provides an exception from the limitation of chaining fixed-term employment contracts (i.e. the so-called 3x3 years exception). The introduced draft bill aims to abolish the exception and have the restriction also apply to agency employment.
Yet a stricter change is the setting of a maximum quota based on which employers could not have more than 15% of employees on secondment from employment agencies. If passed, the regulation would surely give employers in certain industries something new to worry about.
Martin Kofroň [email protected]
T: +420 222 123 745
Linda Čechová [email protected]
T: +420 222 123 889
LEGAL NEWS
TAX NEWS
/ Tax crime and punishment?
/ GFd on reverse-charge mechanism
/ Methodological guideline on electronic submissions
/ News on VAT ledger statements
/ Operational Programme news
LEGAL NEWS
/ Consumer credit agreements revisited
/ Restriction of agency employment
INTERNATIONAL NEWS
/ Tax Transparency Package
/ Global exchange of information
CASE LAW
/ Allocation of profit to permanent establishments
/ The abuse of law in chain transactions
APRIL / 2015Tax and Legal Update / KPMG Czech Republic 12
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INTERNATIONAL NEWS
Tax Transparency Package
In mid-March the European Commission presented a package of tax transparency mea-sures as part of its plan to tackle corporate tax avoidance and harmful tax competition in the EU. A key element of the Tax Transparency Package is the proposal to introduce the mandatory automatic exchange of information on tax rulings with cross-border tax impli-cations between Member States.
Every Member State has so far had the choice to decide to what extent it will share its tax rulings with other Member States; consequently, the exchange of information has been so-mewhat limited. Moreover, the system of unshared tax rulings helped certain taxpayers artifi-cially reduce their tax liabilities.
The Commission therefore proposed replacing the voluntary principle with the mandatory principle of the automatic exchange of information. In accordance with the new requirement, local tax administrations would have to exchange short reports of newly issued tax rulings with cross-border tax implications with other Member States on a quarterly basis. Individual Member States would subsequently be able to ask for more detailed information about any specific tax ruling.
Other initiatives to advance tax transparency within the EU are proposing the following:
• imposing new transparency requirements for multinationals
• reviewing the Code of Conduct on Business Taxation
• quantifying the scale of tax evasion and avoidance
• repealing the Savings Tax directive and replacing it with new EU legislation.
The above legislative proposals will be submitted to the European Parliament for consultation and subsequently to the Council for adoption. Member States should approve the proposal regarding the exchange of information on tax rulings by the end of 2015 so that it may enter into effect on 1 January 2016.
Further steps by the Commission towards advanced tax transparency will include an Action Plan on Corporate Taxation to make corporate taxation within the Single Market fairer and more efficient, additional discussions of the Common Consolidated Corporate Tax Base (CCCTB) and the implementation of recommendations arising from the OECd’s Action Plan on Base Erosion and Profit Shifting (BEPS) into EU legislation.
Helena Pajskrová [email protected] T: +420 222 123 742
Daniel Szmaragowski [email protected]
T: +420 222 123 837
TAX NEWS
/ Tax crime and punishment?
/ GFd on reverse-charge mechanism
/ Methodological guideline on electronic submissions
/ News on VAT ledger statements
/ Operational Programme news
LEGAL NEWS
/ Consumer credit agreements revisited
/ Restriction of agency employment
INTERNATIONAL NEWS
/ Tax Transparency Package
/ Global exchange of information
CASE LAW
/ Allocation of profit to permanent establishments
/ The abuse of law in chain transactions
APRIL / 2015Tax and Legal Update / KPMG Czech Republic 13
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Global exchange of information
The Global Forum on Transparency and Exchange of Information for Tax Purposes, ensuring the implementation of internationally agreed transparency and exchange of information standards in the tax area, published nine new peer review reports. These also include a highly important report on Switzerland, describing the continuing progress of this country toward the implementation of the international standard for the exchange of information for tax purposes.
The Global Forum on Transparency and Exchange of Information for Tax Purposes (“the Global Forum”) published nine new peer review reports on 16 March 2015, including a report describing the continuing progress of Switzerland toward the implementation of the international standards for transparency and exchange of information in the tax area.
The Global Forum is an international body consisting of about 125 members whose aim is to ensure the implementation of the internationally agreed standards of transparency and exchange of information in the tax area among the individual Member States.
The Global Forum’s principal activity is a peer review process to assess whether and to what extent Member States as well as non-EU countries adhere to these internationally agreed standards. The peer review process has two phases, each ending with a report summarising the results for a particular state. Phase 1 evaluates the quality of the particular country’s legal and regulatory framework for the exchange of information and transparency in tax matters. Phase 2 evaluates to what extent the standards have been implemented there in practice. After the completion of both phases, the Global Forum assigns an overall rating to the country under review.
The peer review reports published on 16 March 2015 also include reports on the completion of Phase 1 of reviews carried out in Mauritania and El Salvador. Both countries now qualify for Phase 2. The report on the review of Switzerland states that after having removed previously--identified deficiencies Switzerland now also qualifies for Phase 2. Switzerland has adopted a new law on international assistance and exchange of information with the aim to harmonise its rules with international standards and has signed the OECd’s multilateral Convention on Mutual Administrative Assistance in Tax Matters.
Other disclosed reports summarise the reviews of six countries and assign final ratings. Aruba, the Cook Islands, Hungary, Portugal and Uruguay received an overall rating of “largely compliant”; Curacao was rated “partially compliant”.
The Global Forum has already carried out peer reviews of 183 countries and assigned 77 final ratings. The Czech Republic has successfully completed Phase 1 and is currently under review within Phase 2.
Jan Kiss [email protected]
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Jana Šandová [email protected]: +420 222 123 740
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APRIL / 2015Tax and Legal Update / KPMG Czech Republic 14
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CASE LAW
Allocation of profit to permanent establishments
The allocation of profit to permanent establishments is increasingly often subject to examination by the tax authority. The Supreme Administrative Court has brought another view on the deductibility of expenses for inter-company services.
In February the Supreme Administrative Court (“the SAC”) issued decision No. 2 Afs 8/2014 – 174 regarding the allocation of profit to the permanent establishment of a Czech entity in Germany and regarding the substantiation of expenses incurred for inter-company advisory services.
As stated in the first part of the decision, the taxpayer determined the tax base of its per-manent establishment by an indirect method according to its profitability, using the profits generated for several periods and calculating the average (this tax base was not taxed in the CR). The German tax authority accepted this procedure; the Czech tax authority, however, did not. The disagreement on the Czech part was affirmed by the Regional Court, which argued that “it is not possible to cumulate revenues and expenses reported in the accounts for all previous taxable periods as it is at variance with the matching principle in terms of substance and time.” The SAC expressed itself similarly, adding that with respect to the double-taxation treaty with Germany “it is not at all possible to reflect an average coefficient calculated from any amounts reported in previous periods in the tax base.”
In the second part of its decision, the SAC had to discuss a petition filed by the taxpayer seeking the right to deduct expenses incurred for services that were provided by its parent company after the taxpayer had become a member of the group. The taxpayer had provided a relevant contract to the tax authority to substantiate the tax deductibility of these expenses but neither the tax authority nor the SAC considered it adequate. According to the SAC, the mere existence of contracts or invoices or allegations made by taxpayers is not sufficient proof to substantiate the provision of services at issue. These means of evidence must be supported with other documents and materials proving the provision of such services. Consequently, the tax authority rejected the taxpayer’s claim to deduct these expenses for the lack of sufficient supporting documentation. The SAC, however, objected to this decision and held that part of the services in question had provably been rendered to the taxpayer and that the tax authority should not have rejected these expenses in its entirety but should have, based on the taxpayer’s failure to provide evidence, considered the possibility of determining tax by other means (e.g. by ascertaining what expenses are charged for advisory services by comparable entities under similar circumstances).
Kristyna Haldová [email protected]
T: +420 222 124 325
Tomáš Drašar [email protected]
T: +420 222 123 582
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APRIL / 2015Tax and Legal Update / KPMG Czech Republic 15
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The abuse of law in chain transactions
The Supreme Administrative Court has recently again addressed the case of a taxpayer who was a member of a chain transaction beginning with a taxpayer who failed to pay VAT and did not respond to any appeals of the tax authority and ending with a supply of goods to another Member State exempt from tax (or export to a third coun-try exempt from tax in another case) while claiming an excess VAT deduction. The tax authority completely disregarded the business case as it qualified the case as an abuse of law by the taxpayer and instead of tax liability arising from the small margin origina-lly declared by the taxpayer, the tax authority additionally assessed zero tax.
The Supreme Administrative Court (the SAC) has reasserted the conditions under which law is considered abused in chain transactions. This happens if the below conditions have been met simultaneously:
• All objective circumstances of a case imply that the main purpose is to obtain tax credit.
• Obtaining tax credit would be, in spite of complying with formal requirements laid down by valid regulations, at variance with the purpose of the relevant legal provisions.
In assessing whether the conditions were met in the given case (decision No. 6 Afs 156/2014-47), the SAC took into account the nature of the supplies, non-standard business conditions, personnel relations between statutory representatives and their mutual business history. It was ascertained that so far, the taxpayer had filed zero-tax returns, did not have any assets and em-ployees, the cash and bank account balances only showed registered capital and the address was a mere administrative seat. Although received invoices had an extremely long maturity, none of them had been paid. At the same time, some of the entities in the chain were found to have repeatedly registered for VAT prior to the given transaction and a new company had been established in Slovakia that was to act as the end customer.
The SAC arrived at the decision that the business transactions concerned could only be con-sidered the artificial creation of conditions under which the last entity in the chain would be entitled to a deduction in the Czech Republic, and that the merely random or unknowing invol-vement of the taxpayer in the chain may be ruled out. The taxpayer had argued that he legiti-mately expected that since he had acted in good faith, the unlawful conduct of other persons that he could not have been aware of should not be attributed against him. The court did admit that taxpayers may legitimately expect that in cases similar or identical in terms of merits the tax authority will proceed in a similar or identical manner towards the same or a different entity. Nevertheless, the court ruled that the fact that another tax authority did not find the supplier and the customer acting similarly to be at fault whereas the tax authority in the present case did determine an abuse of law by the taxpayer based on an investigation of the merits and on its own legal assessment should not be considered the tax authority’s settled, unified and long-term administrative practice, as there is no evidence that in the past the tax authority over the long-term and in a settled and unified manner considered all similar business transactions to be standard.
Aleš Krempa [email protected]
T: +420 222 123 551
Iva Císařová [email protected]
T: +420 222 123 709
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/ GFd on reverse-charge mechanism
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/ Consumer credit agreements revisited
/ Restriction of agency employment
INTERNATIONAL NEWS
/ Tax Transparency Package
/ Global exchange of information
CASE LAW
/ Allocation of profit to permanent establishments
/ The abuse of law in chain transactions
APRIL / 2015Tax and Legal Update / KPMG Czech Republic 16
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News in brief
• On the Financial Administration‘s website, the GFd has published sixteen questions and answers regarding the completion of an attachment to corporate income tax returns including a summary of transactions with related parties. Please see http://www.financnisprava.cz/cs/dane-a-pojistne/dane/dan-z-prijmu/dotazy-a-odpovedi/dan-z-prijmu-pravnickych-osob/nejcastejsi-otazky-a-odpovedi-prevodni-ceny-5909
• The FATCA Announcement will have to be filed electronically via the Tax Portal using the electronic filing application EPO. The submission must include an acknowledged electronic signature; otherwise the identity of persons filing the announcement must be verified through the means used for access to their data boxes. When filing the announcement using a third-party interface, the filing must include an acknowledged electronic signature. For more details please go to http://www.financnisprava.cz/cs/mezinarodni-spoluprace/mezinarodni-zdanovani-prime-dane/fatca/elektronicke-podani-oznameni-fatca-5915
• The Financial Administration has published basic information regarding the electronic reporting of sales. Please see http://www.financnisprava.cz/cs/financni-sprava/eet
• The Ministry of Finance has prepared an amendment to the Act on Immovable Proper-ty Acquisition Tax. The fundamental change is the appointment of the acquirer as the person liable to immovable property acquisition tax, thus cancelling the possibility of choosing the payer of this tax and putting an end to the institute of guarantee. The amendment should become effective from 2016
• On its website, the Financial Administration has disclosed more detailed information on the Mini One Stop Shop regime. Please see http://www.financnisprava.cz/cs/dane-a-pojistne/placeni-dani/jak-spravne-zaplatit-dan/2015/dph-zvlastni-rezim-jednoho-spravniho-mista-5921
The information contained herein is of a general nature and is not intended to address the circumstances of any particular indivi-dual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
© 2015 KPMG Česká republika, s.r.o., the Czech member firm of KPMG International, a Swiss cooperative. All rights reserved. Printed in the Czech Republic.
TAX NEWS
/ Tax crime and punishment?
/ GFd on reverse-charge mechanism
/ Methodological guideline on electronic submissions
/ News on VAT ledger statements
/ Operational Programme news
LEGAL NEWS
/ Consumer credit agreements revisited
/ Restriction of agency employment
INTERNATIONAL NEWS
/ Tax Transparency Package
/ Global exchange of information
CASE LAW
/ Allocation of profit to permanent establishments
/ The abuse of law in chain transactions