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Czech Republic: Bill proposing digital services tax presented to legislature

Czech Republic: Bill proposing digital services tax

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.

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Proposed digital services tax

The bill divides taxable services into three basic groups:

  • The performance of targeted advertising campaigns
  • The use of multilateral digital interfaces
  • The provision of user data

“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 provision of a targeted advertising campaign would mean the placement of a targeted campaign on a digital interface and the provision of accessory services.
  • The use of a multilateral digital interface would mean allowing for the conclusion of a transaction among multilateral digital interface users to facilitate the delivery of goods, the provision of services, or the mere provision of user access to a multilateral digital interface.
  • The provision of user data would mean the provision of a set of data on users collected or created based on their activity on digital interfaces. A partial tax base would be calculated for each individual group of services while focusing on the extent to which the taxable services are provided in the territory of the Czech Republic.

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

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