Czech Republic: Status of digital services tax legislation

The digital services tax legislation has moved on to the next phase of legislative process

The digital services tax legislation has moved on to the next phase of legislative process

A bill concerning a digital services tax has moved on to the next phase of the legislative process.

The final, third reading in the Chamber of Deputies is expected to take place in the first half of June 2021. The bill would then be sent to the upper chamber for its consideration.

Amendments made to the bill during the legislative process include a reduction of the tax rate to 5% (from the proposed rate of 7%) and a delay of the effective date to either 1 January 2022 or 1 January 2023.

Summary of digital services tax

The bill would introduce a digital services tax on:

  • Targeted advertising campaigns
  • The use of multifaceted digital interface
  • The provision of user data

Taxable services would be defined as those provided through a digital interface. Any software (such as website or application) accessible to users would be considered a digital interface.

A user would be defined as any legal and natural person or entity without legal personality accessing the digital interface using a technical device. For the service to be taxable, it would have to be provided through a technical device located in the Czech Republic—determined by the location of a device’s IP address. In a situation when there is a group of services, a partial tax base would be calculated based on the extent to which the taxable service is provided in the Czech Republic.

The determination of who is a taxpayer for purposes of the digital services tax would be based on three criteria:

  • The company belongs to a multinational group with a total annual turnover of at least €750 million.
  • The company as a significant digital presence in the Czech Republic—meaning that the multinational group’s total revenue from taxable services provided in the Czech Republic exceeds CZK 100 million for the relevant period. There also is a minimum threshold for the taxation of digital services. For targeted advertising and providing user data, the total remuneration for the individual type of service provided in the Czech Republic must exceed CZK 5 million; the use of a multilateral digital interface would be subject to taxation if the number of user accounts on that interface exceeds 200 thousand.
  • The amount of taxable services provided by a multinational group in the EU and EEA exceeds 10% of the group’s total turnover.

Companies that belong to groups that meet the first and second criteria but do not become payers because they do not meet the third criterion would only have a reporting duty.

The taxable period would be the calendar year.

Registration with the tax administrator would be required within 15 days from the date of the first taxable service. After that, the entity would become a taxpayer and would be required to pay monthly advances of the digital services tax. To determine whether the conditions for registration are met and the amount of advances in the first taxable period, a “relevant” period would be based on the last accounting period for which the entity’s financial statements have been prepared preceding the first day of the tax period.

Digital services taxpayers would be required to keep records, in the format necessary for preparing the tax return and separately for separate taxable services.

Lastly, the bill provides that if an agreement on the principles of taxation of the digital economy is reached at the EU and OECD levels, then the digital services tax in the Czech Republic would be time-limited so that 2024 would be the last tax period for which the tax would apply.

Read a June 2021 report prepared by the KPMG member firm in the Czech Republic

 

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