Czech Republic: Digital services tax, update
Czech Republic: Digital services tax, update
The Czech government on 18 November 2019 approved the introduction of a digital services tax. The bill will now be considered by parliament.
The tax would be imposed at a rate of 7% on the provision of digital services in the territory of the Czech Republic for certain providers that satisfy the threshold 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
- Total revenues from taxable digital services from the Czech Republic of the group in which the provider is a member (or of a stand-alone entity that is not a member of a group) greater than CZK 100 million (approximately €2 million)
Compliance with these criteria would be assessed for the “decisive period” defined as the last accounting period for which the financial statements have been prepared before the first day of the tax period (calendar year). If the entity or the group that was not a payer of digital services tax in the decisive period does not have enough information to calculate the threshold amounts, the amounts would be determined based on a reasonable estimate. These amounts would also be decisive for the calculation of tax pre-payments due for the period before the first tax return is filed. The registration would need to be filed within 15 days from the day when the first tax obligation arose after the entity became a payer of the tax.
The following digital services have been 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 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 in the decisive period.
- Providers of services in the form of targeted advertisements or the sale of user data would be subject to tax only if they exceed the revenue threshold of CZK 5 million for each type of service in the decisive period.
- The tax would not be imposed if the revenue from Czech-sourced digital services does not exceed 10% of the total revenues in Europe.
- Regulated financial services provided by regulated financial entities otherwise considered taxable services in the form of the use of multisided digital interfaces or the sale of user data would be excluded from the scope of the digital tax.
- In general, only services provided in the Czech Republic would be taxable. In general, this would be determined based on the location of the technical equipment used to access the digital interface.
- Targeted advertisement is understood to be advertisement directed at users based on data collected on them. The decisive factor would be if Czech users see the advertisement, click on it, and place an order based on the advertisement, or undertake other actions connected with the obligation to pay for the placement of the advertisement (remuneration events). For purposes of this type of services, it would be assumed that all users are located in the Czech Republic if the advertisement is targeted at Czech users (e.g., if the advertisement is in the Czech language).
- The tax base would be determined with reference to the remuneration generated by Czech users.
- The use of a multisided digital interface is understood to be the use of an interface that would allow the user: (1) to find another user, user account, or an offer or request for the delivery of goods or provision of services or conclusion of a transaction between users of a multisided digital interface, enabling the underlying supplies of goods or provision of services, or (2) to make or accept offers for the delivery of goods or the provision of services, to conclude transactions or to communicate with other users.
- The tax base would be determined by reference to either the remuneration paid by Czech users for the possibility to use the multisided digital interface, consisting of the possibility to conclude transactions, or to the part of the remuneration linked to Czech users for the actual use of the multisided digital interface, consisting of the possibility to conclude transactions.
- The sale of user data is understood to be the sale of data gathered about the users of the digital interface and obtained based on their activity on the digital interface.
- The tax base would be determined by reference to the number of Czech users who contributed to the generation of the data being sold.
- The tax rate would be 7%, and the tax period would be the calendar year.
- The effective date would be the first of the month after the month of the legislation’s publication in the collection of laws. The government plans an effective date at some point in the middle of 2020.
However, the exact timing and any possible changes to the conditions currently proposed would depend on the legislative process. The law would be expected to apply until 2024, depending on whether an international solution could be found (that is, at the OECD).
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
Ladislav Malusek | +420 222 123 521 | email@example.com
Vaclav Banka | +420 222 123 505 | firstname.lastname@example.org
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