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Czech Republic: Proposals to limit interest deductions, revise CFC rules

Czech Republic: Proposals to limit interest deductions

Proposed changes to the income tax law of the Czech Republic has completed the comment process. Among the proposed amendments are provisions that would implement the EU Anti-Tax Avoidance Directive (ATAD) into Czech tax law.


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As proposed, the legislation amendment would:

  • Limit the deductibility of certain borrowing costs in transactions with both related and unrelated parties above a set limit
  • Revise the controlled foreign corporation (CFC) rules
  • Impose an exit taxation upon the relocation of assets without a change of ownership
  • Determine the taxation of gains or losses on equity securities voluntarily classified as measured at fair value through equity (IFRS 9) by adjusting the taxpayer’s tax base
  • Provide a new process for taxing revenues from equity certificates / instruments measured at fair value by adjusting the taxpayer’s tax base
  • Add rules that would “neutralize” the effects of hybrid mismatch arrangements

Most of the proposed changes are proposed to be effective for tax periods beginning on or after 1 January 2019. However, exit tax and hybrid mismatch rules are proposed to be effective for tax periods starting on or after 1 January 2020.


Read a June 2018 report prepared by the KPMG member firm in the Czech Republic

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