The government submitted to the Chamber of Deputies a bill introducing a digital services tax to be imposed at a rate of 7%. The tax would apply to companies that are part of corporate groups generating a turnover of more than €750 million and with a tax base relating to taxable digital services rendered in the Czech Republic exceeding CZK 100 million (approximately €4 million). The government expects that the legislation, once enacted, would be effective in mid-2020.
Proposed digital services tax
The bill divides taxable services into three basic groups:
“Taxable services” would be services provided via a digital interface (i.e., any software such as a website or an application accessible to users). The user is defined as any legal entity or an individual or a unit without legal personality, accessing a digital interface using technical equipment. When such services are rendered via technical equipment located in the Czech Republic, the provision of such services would be treated as taxable, giving rise to a tax liability. A determining factor would be the location of the equipment’s IP address.
The bill specifies a minimum threshold for the taxation of specific digital services. For the provision of targeted advertising campaigns and the provision of user data, the sum of payments for a particular service rendered in the Czech Republic would have to exceed CZK 5 million. The use of multilateral digital interfaces would be liable to digital services tax if the number of user accounts on the interface exceeds 200,000. Corporate groups whose sum of payments for taxable services rendered in the EU Member States, Switzerland, Norway, and certain other accounts for a maximum of 10% of their total revenue from these states would be excluded from the law’s applicability. The bill also provides for other exceptions.
The taxable period would be the calendar year. After registration, taxpayers would have to pay monthly installments and keep records of their digital services, sorted by individual deliveries of taxable services as needed for the preparation of tax returns.
The law would need to be in harmony with the digital economy taxation principles within the EU and the OECD. The law’s applicability would be time-restricted—the last taxable period when the law would apply would be 2024.
Read a December 2019 report prepared by the KPMG member firm in the Czech Republic
The KPMG name and logo are trademarks used under license by the independent member firms of the KPMG global organization. KPMG International Limited is a private English company limited by guarantee and does not provide services to clients. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual 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. For more information, contact KPMG's Federal Tax Legislative and Regulatory Services Group at: + 1 202 533 4366, 1801 K Street NW, Washington, DC 20006.