The new tax would be referred to as a tax on selected digital services (digital tax).
The legislation defines the provision of “selected services” in the territory of the Czech Republic as being subject to the digital tax as those when providers of the service meet the following size criteria:
- Total consolidated revenues of the group in which the provider is a member (or of a stand-alone entity that is not member of a group) greater than €750 million, and
- Total revenues of the group in which the provider is a member (or of a stand-alone entity that is not member of a group) from taxable digital services from the Czech Republic greater than CZK 50 million (approximately €2 million)
The following digital services would be defined as taxable:
- Carrying out targeted advertisement campaigns
- Use of multi-sided digital interfaces
- Sale of user data
Definitions, tax base, tax rate, effective date
- Digital services would not be considered to be taxable if they are provided to another group entity.
- Providers of multi-sided digital interfaces not providing any other taxable digital services in the Czech Republic would be subject to tax only if they have more than 200,000 users.
- Targeted advertisement is understood to be advertisement directed at users based on data collected about the users. The decisive factor would be if Czech users (mostly determined from their IP addresses) see the advertisement, click on it, and order based on the advertisement, or undertake other actions connected with the obligation to pay for the placement of the advertisement (remuneration events).
- The tax base would be determined based on the ratio of Czech remuneration events to the total remuneration events. This ratio would then be applied on the total worldwide revenue of the payer generated from the targeted advertisement campaign.
- The payer of the tax would be a company from the group charging for the placement of targeted advertisement to clients (companies selling goods or services based on the advertisements, advertising companies, etc.).
- The use of multisided digital interfaces is understood to be the conclusion of a transaction between users of a multisided digital interface enabling the underlying supplies of goods or provision of services or making available to users or other use of a multisided digital interface by the user. The decisive factor would be when all members (e.g. seller and buyer) of the transaction realised through the interface are known or when the payment for the use of the interface is known (e.g. registration is subject to a fee).
- The service would be subject to tax if a Czech user (mostly determined based on the IP address of the user) participates in a transaction or if the registration to the interface is made by a Czech user. It would not be based on where the sale takes place or where the payment is made.
- The tax base would be determined with reference to the ratio between the number of Czech users participating in the transaction and the total number of users participating in the transaction. This ratio would then be applied to the total amount of revenue derived from the use of the interface with at least one Czech user. For the use of the interface subject to the registration fee, the tax base would be created by fees paid by Czech users.
- The sale of user data is understood to be the sale of data gathered about users of the digital interface and obtained based on their activity on the digital interface, with the exception of data gathered through a sensor device or obtained by a regulated financial institution.
- The service would be considered to be rendered if all users on whom data is collected are known and if at least one of those users is from the Czech Republic (mostly determined based on the IP address of the user).
- The tax base would be determined as the ratio between the number of Czech users and total number of users on which data were collected, this ratio will be applied on the total revenue from the sale of data with at least one user.
- The tax rate would be 7% and the taxable period would be the calendar year.
- The effective date would be the first of the month after the month of its publication in the collection of laws. The government plans an effective date at some point in the middle of 2020. However, the exact timing will depend on the legislative process.
The Ministry of Finance prepared a digital service tax bill that reflects the information provided above. Read a September 2019 report prepared by the KPMG member firm in the Czech Republic
For more information, contact a tax professional with the KPMG member firm in the Czech Republic:
Petr Toman | +420 222 123 602 | firstname.lastname@example.org
Vaclav Banka | +420 222 123 505 | email@example.com