As of 1 January 2016, author’s income based on the Copyright Act resulting from the creation of a work and artistic performance under Paragraph 6 Section 2(a) of Act on Income Tax and income resulting from the use of artistic performance based on Section 6 Paragraph 4 of Act on Income Tax is preferentially taxed by withholding tax or by two different means depending on the taxpayer’s (author’s) decision and the author’s (non)preference to have their remuneration taxed by withholding tax or non-taxed under the condition that the author concludes a prior written agreement with the payer on non-application of withholding tax.

If you concluded an agreement with an author in 2016 on not withholding tax, you are obliged to report the conclusion of this agreement to the tax authority by 15 January 2017.

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Act on Travel Allowance effective since 1 December 2016 changes subsistence allowance for employees on a business trip within the Slovak Republic depending on the length of the trip:

5-12 hours: 4.50 EUR

12-18 hours: 6.70 EUR

More than 18 hours: 10.30 EUR

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Business entities which have not activated their electronic mailboxes for communication with the government will thus have more time for compulsory activation. The original date of 1 January 2017 was postponed to 1 July 2017. The main reason for the postponement of compulsory activation is low number of statutory representatives of legal persons registered in the Commercial Registry who possess electronic ID with electronic chip and personal security code.

The amendment of the E-government Act also establishes a new rule of 10 days. This is the amount of time that an owner of a mailbox has after the activation of the mailbox to apply for authorization for other natural persons who the owner himself authorizes to manage the mailbox.

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Act 447/2015 Coll. on local development fee and on changes and amendments to certain acts

On 7 December 2016, National Council of the Slovak Republic enacted an act amending Act No. 447/2015 Coll. on local development fee and on changes and amendment to certain acts http://www.nrsr.sk/web/Default.aspx?sid=zakony/zakon&MasterID=6086 /Approved wording of Act of National Council of the Slovak Republic 271.

The aim of the Act is to establish into self-regulating competence a financial tool that will be created by each municipality on a voluntary basis by a generally binding regulation, which shall have an acceptance role, development role and anti-corruption role.

The Development Fee can be established by a municipality in its territory, a separate part thereof or a separate cadastral area by a generally binding regulation.

Once a municipality decides to establish the fee and it is approved by local authorities and included in Generally Binding Regulations, the municipality is obliged to impose the fee on a person – payer, who has met conditions set by the Act.

Subject to development fee is a land building in the territory of the municipality

a) for which a valid building permit has been issued to permit the construction (hereinafter only the “Building Permit”),

b) which has been registered at the Building Office

c) for which a decision on approval of reconstruction has been issued prior to its completion or

d) which has been permitted ex post.

Subject to the development fee is a building as specified in the above-mentioned points, if new or additional flooring area is created in the above-ground part of the construction.

The following examples are not subject to development fee: maintenance, repair, reconstruction or modernization of a flat building which does not cause change of total floor area of all flats and non-residential areas in the flat building, a small building, a superstructure and an extension with floor area of less than 25 m2, a building or a part of a building of a healthcare facility, used as a nursery school, used for sports purposes, used for purposes of a museum, library, art gallery, etc.

The payer is a natural person or a legal person in a position of a developer for whom a building permit, decision on the approval of reconstruction prior to its completion or decision on building permission ex post has been issued or which as a developer registered the building at the Building Office.

The Development Fee ranks from EUR 3 to EUR 35 per each m2 or a part thereof of the floor area of the above-ground part of the building. The base of the Development Fee is the floor area of the above-ground part of the building in m2.

A municipality can set Development Fee under this Act for a building for which a building permit was issued after the effective date of this Act, however, at the earliest after the Development Fee is established by a generally binding regulation of the municipality.

A municipality can set or change the Development Fee by a generally binding regulation only as of 1 January of a calendar year or if a municipality sets the Development Fee by a binding regulation in 2017, the municipality can set the Development Fee at the earliest on the effective date of the generally binding regulation.

This Act comes into force on 31 December 2016.

It is recommended to monitor generally binding regulations of municipalities published at their web sites in case a municipality decides to set the Development Fee in its territory applicable to your building. If you have any questions or if you need assistance in this matter, do not hesitate to contact us.

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However, we would like to inform you that in relation to payment of profit shares (dividends), maximum assessment basis shall remain in force. For the calculation of premium from dividends paid for 2016, maximum assessment basis is EUR 51,480. On dividends paid to natural persons from profits generated starting from 1.1.2017, a personal income tax at a rate of 7% is being introduced, where the dividends won’t be subject to contribution to health insurance anymore (for further details please see our last newsletter). 

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2. Changes to the Act on Value Added Tax:

2.1 Tax Deduction by Foreign Taxpayers

A taxpayer, that is registered as a foreign taxable person following section 5 and complies with the conditions for tax refund to a foreign person from another Member State or from a third state, cannot apply tax deductions to goods and services through tax return, except the following cases stated in section 49 (9):

–        application of tax deduction to goods and services used for supplies of goods and services, where the person obliged to pay the tax is the supplier.

–        purchase of goods or services from another inland taxpayer with the transfer of tax liability; e.g. transfer of tax liability following section 69 (12) (j) of the Act on VAT in the building sector (SPECIFICATION OF SECTION 49 (9) BY THE AMENDMENT).

So, a foreign person will preferably apply tax refund through an application for the refund of tax paid for goods and services before deduction of the tax through tax return.

2.2 Refunding tax to persons enjoying privileges and immunities following international law and tax exemption

By the amendment to the act, the period for tax refund is reduced from two years to six months after registration of diplomatic personal vehicles or diplomatic commercial vehicles with assigned vehicle registration plates starting with EE or ZZ, for which the tax has been refunded and the vehicles are destroyed or alienated. Where a foreign taxpayer has claimed refund of tax paid at the price of a personal vehicle and ends its operation in the Slovak Republic, it is obliged to repay the tax within six months after registration of the vehicle.

2.3 Transferring tax liability in construction works. Persons obliged to pay the tax to the tax administrator

In practice, a supplier of construction works can be classified differently than its client, mainly due to different description of the same activity. For this reason, so-called legal fiction has been introduced in order to transfer the tax liability in construction works, which is to transfer the legal certainty for both the supplier and the client and to eliminate excess administrative burden in multiple checks of correctness of the classification according to the CPA classification.

A new provision has been inserted in the act, stating that where a taxpayer supplies construction works or goods with installation and considers these construction works or goods with installation to be a supply following section 69 (12) (j) and where the invoice issued states the information “transfer of tax liability”, the taxpayer being the receiver of the supply is the person obliged to pay the tax.”.

2.4 VAT Control Statement

A new obligation of the taxpayers that make a supply with a transfer of tax liability in the building sector – to report issued invoices in the VAT control statement, even where the supplies are not reported in the VAT return. The invoice will be reported in part A.2. of the VAT control statement and the data stated in the invoices will be used in the analytical activity of the financial administration.

2.5     Compensation for the retention of excess deduction during tax inspection

The amendment to the act introduces financial compensation for the retention of excess VAT deduction, co-called excess deduction interest.

Where the period for the retention of excess deduction exceeds six months after passing of the period for refund of the excess deduction as provided for by the law, a taxpayer is entitled to the excess deduction interest. The taxpayer will not file any application for recognising excess deduction interest as the respective tax authority will issue a decision on recognition of excess deduction interest of its own motion. A taxpayer is not entitled to the interest where the duration of the tax inspection is prolonged from reasons at the taxpayer’s part by repeated failure to fulfil the obligations imposed to the taxpayer in course of the tax inspection, to collect mails, to attend the tax authority at request without stating a reason and to be reached at its address, where the tax authority will issue a decision about it.

According to the transitional provision, the legal regulation of the entitlement to financial compensation for the retention of excess deduction during tax inspection will apply to the cases of retention of excess deduction based on a tax inspection which began after 1 January 2017 as well as to the cases where a tax inspection began before the effectiveness of this amendment and did not finish before 1 January 2017.

2.6 Self-assessment of the import of goods from third countries

With the effect of the amendment to the Act on Value Added Tax from 31 December 2016, the effect of self-assessment of the import of goods from third countries is suspended. The effect of self-assessment of the import of goods through a filed tax return will be applied depending on the amount of the debt of the public administration of the Slovak Republic and will be applied from 1 January of the calendar year following the year, in which the European Commission (Eurostat) published data relating the amount of the debt of the Slovak public administration, according to which the difference between the upper limit of debt determined for the given year and the current level of the debt for the respective budget year is more than 11 percentage points.

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1. Changes to the Act on Income Tax:

1.1 Profit shares, dividends

Adopted amendment to the Act on Income Tax

A meeting of the National Council of the Slovak Republic was held on 23 November 2016, at which new rules governing the taxation of dividends in the Slovak Republic were adopted with the effect from 1 January 2017.

Compared to the previous draft act, which we reported about in the previous newsletter, one of the principal changes is that profit shares (dividends) of natural persons will be taxed at the rate of 7% instead of the initially proposed 15% or at 35% of the special tax base and they won’t be a subject to contribution to health insurance.

Taxation of dividends in cases of natural persons will be assessed separately depending on the years for which they are paid:

1)     Dividends paid from profits generated until the end of 2003 – when paid after 2016, these dividends will be taxed by deduction at the rate of 7%; these were taxed as a part of the tax base of the taxpayer – natural person at 19% or eventually 25% in the period from 2004 to 2016;

2)     Dividends paid from profits generated in the period from 2004 – 2016 – for these dividends, the existing tax regime will be applied; i.e. the dividends haven’t been subject to the tax and, when paid after 2016, they won’t be taxed but these dividends will still be subject to contributions to health insurance depending on the legislation valid in the respective periods (2011 – 2012 at the rate of 10%, 2013 – 2016 at 14 %);

3)     Dividends paid from profits generated from 2017 – taxation of dividends paid to natural persons by deduction at the rate of 7% is being introduced, where the dividends won’t be subject to contribution to health insurance;

4)     For dividends paid to/received from another country, articles of the respective double taxation agreement apply, which take priority over the Act on Income Tax.

Dividends paid to natural persons, residents of non-contracting states, or received by natural persons, Slovak residents, from business companies based in non-contracting states are subject to a special tax rate of 35%.

Rules for taxation of dividends (profit share) are equally applied to taxation of balance interest, share in the surplus upon liquidation, profit share and share in assets of a member of the land association.

Exemption: Exemption of share of a land association member with legal personality

Share of a land association member with legal personality is exempted to the amount of EUR 500. Share of a land association member will be taxed only where amounting to more than EUR 500, in a sum exceeding this amount.

From 1 January 2017, the amendment to the Act on Income Tax will significantly affect employees without participation in registered capital of a trading company or cooperative:

Income in the form of dividends in employees will be classified as income from employment, with equal liabilities in respect of health and social insurance as in the case of a salary. Dividends paid to employees without participation in registered capital from profits generated in the accounting period from 1 January 2014 to 31 December 2016 are exempted from the income tax.

Shares and dividends of partners in general partnerships and general partners in limited partnerships:

Share in profit of a partner of a general partnership and that of a general partner of a limited partnership, share of a partner of a general partnership and that of a general partner of a limited partnership in the surplus upon liquidation and balance interest at the cease of participation of a partner in a general partnership and that of a general partner in a limited partnership is subject to the tax at the part of the partner – legal person as a part of tax base following section 14 – corporate tax base.

Taxation of dividends in legal persons:

These dividends are still not subjects to the tax.

The only exception is dividends paid to legal persons – residents of non-contracting states or dividends received from legal persons from non-contracting states, which will be taxed at the special rate of 35%.

Taxation of dividends of legal persons, paid in the taxation period from 1 January 2017 from profits reported until 31 December 2003 in legal persons, doesn’t change and such dividends are subject to taxation.

All the changes in terms of implementing taxation of dividends and other income will be applied to profits reported for the taxation periods starting latest on 1 January 2017; in the case of share of a land association member, to profits reported for the taxation periods until 31 December 2016; in the case of share in the surplus upon liquidation, where the trading company or cooperative entered the liquidation until 1 January 2017, and in the case of balance interest, whose amount was determined based on annual accounting statements for the accounting period starting latest on 1 January 2017.

1.2    Change of the tax rate:

The rate of corporate income tax for the taxation period starting latest on 1 January 2017 is decreased from 22% to 21%.

1.3      Tax licence repeal:

The companies (e.g. s.r.o.) with taxation period of one calendar year will pay tax licence for the last time for 2017. The companies that apply economic year as the taxation period will pay the tax licence for the last time for the taxation period ending in 2018.

1.4    Increase of lump sum expenses

The limit of lump sum expenses rises to 60% from income from business activities and other self-employed activity to the maximum amount of EUR 20,000.

The amendment to the act applies to the taxpayers whose income comes from business activities following section 6 (1), income from self-employed activity following section 6 (2) as well as from income from the use of works and artworks following section 6 (4). The regulation doesn’t apply to the taxpayers whose income comes from rental following section 6 (3) of the Act on Income Tax.

1.5         Changes in transfer pricing

Rules for adjustment of tax base of inland dependent persons change so as no approval of tax administrator will be required to make corresponding adjustments. Similarly, new rules are introduced in respect of primary and corresponding adjustments where one of the participating parties is a taxpayer claiming tax relief, including introduction of the obligation to report adjustments of tax base to the tax administrator.

The process of filing an application for approval of the valuation method by the taxpayer is regulated in detail. Fixed fees for issuance of a decision on approval of the valuation method are determined as follows:

·       EUR 10,000 for unilateral approval of the valuation method according to Act on Income Tax or

·       EUR 30,000 for bilateral approval of the valuation method based on the respective double taxation agreement by the tax administrators of both contracting states.

New section 18a is inserted to the transfer pricing rules, whose purpose is to impose higher sanctions for intentional avoiding paying taxes due to transfer pricing. Where the tax or tax difference is levied on an entrepreneur by the respective tax authority based on a transfer pricing tax inspection on the grounds that the entrepreneur’s conduct had no economic justification and resulted in intentional avoiding or intentional reduction of tax liability, the entrepreneur will be imposed double the fine. However, the fine will not be doubled where the taxpayer doesn’t lodge an appeal against the decision of the tax administrator, by which the tax administrator has increased the tax reported in the tax return or amended tax return, and pays the tax difference within the determined appeal period.

1.6    Other changes to the Act on Income Tax

Changes in determining tax base and tax expenses

1.     Detail definition of rent included in tax base only after payment – application to all payments of rent for both the movable and the immovable items, rights for the use of copyrights, industrial rights and related rights.

2.     Stricter process of taxing treatment of motor vehicles designated for presentation and testing purposes in respect of the obligation to pay administrative fees for the first registration (by one year) and following tax recognisability/non-recognisability of expense related to the operation and maintenance of such motor vehicles (upon passing of a one-year period where the amount of the administrative fee is not paid in full on time).

3.     Introduction of tax recognisability of:

o   expenses of corporate entities, provided in the form of material humanitarian aid organized through the Ministry of Interior of the Slovak Republic based on the adopted directive for procedures of delegations participating in the World Humanitarian Summit in Istanbul and based on Slovak Government Resolution No. 310 of 12 April 2006 on the mechanisms of providing humanitarian aid of the Slovak Republic to foreign countries (humanitarian aid = granting necessary materials, technology, food and other products by humanitarian organizations);

o   mandatory contribution for crisis management following Act No. 371/2014 on Resolution in the Financial Market.

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Action 2: Neutralise the effects of hybrid mismatch arrangements (double non-taxation)

Multinationals often use hybrid debt instruments and various other forms of aggressive tax planning to shift profits, leading to situations of double non-taxation. The introduced anti-avoidance rules govern situations where a tax entity receiving dividends makes transactions which do not correspond fully to economic reality. In such a case, these dividends will become subject to tax. Dividends paid out by a tax entity which can deduct them will likewise be subject to tax. The Slovak Republic has introduced a 35% withholding tax on transfers to offshore destinations.

Action 3: Strengthen Controlled Foreign Company (CFC) Rules

According to CFCs, income earned by these non-resident companies should become taxable when certain thresholds are reached, such as ownership (50%), effective tax rate (40%) and passive income (50%). While CFCs outside the EU should be subject to the substantive testing, CFCs inside the EU/EEC should be captured by CFC rules only if they are involved in a purely artificially created arrangement/structure. The Slovak Republic has yet to implement this Action Plan into its national legislation.

Action 4: Limiting interest deductions

In relation to Action 4, addressing limit base erosion via interest deductions and other financial payments, the Slovak Republic amended Act 595/2003 Coll. on Income Tax to introduce “thin capitalisation” rules in an added Sec. 21a.  The amendment became effective on 1 January 2015.  For the defined “controlled companies”, thin capitalisation rules limit the deduction of interest paid on borrowings and related borrowing costs to a maximum 25% of EBITDA. This means that interest and related costs exceeding 25% of EBITDA (earnings before interest, tax, depreciation and amortisation) during the tax period cannot be deducted.

Thin capitalisation rules do not apply to debtors that are banks, insurance companies or reinsurance companies, entities covered by a special regulation and leasing companies.

In addition to this, the controlled companies do have to charge interests in accordance with the principle of a “separate and independent enterprise” (according to the arm’s length principle – transfer pricing rules).

In order to minimize the tax impacts of the introduced thin capitalisation rules in Slovakia, we advise you to contact us, hence there are possibilities how to neutralize this negative tax impact.

Action 5: Counter harmful tax practices more effectively

Deducting of research and development costs with a 25% “super deduction” from eligible costs has already been implemented in national legislation (see Sec. 30c of the Income Tax Act). It is not yet known whether changes will take place due to final recommendations from the OECD.

Action 8-10: Assure that transfer pricing outcomes are in line with value creation

The adopted amendments particularly cover two areas and apply to the arm’s length principle (Chapter I) and to intangibles. The revised text of Chapter VI, devoted to intangible property, changes the definition, aims to distinguish between actual and legal owners and, among other things, provides for additional factors that should be compared in a comparability analysis of intangibles.

Because the final report on Actions 8-10 directly updates the Directive, it is possible for the principles to be directly applied when interpreting the arm’s length principle and the measurement of intangibles. You can find more detailed information in our newsletter under: https://www.moore-bdr.sk/en/news/detail/what-changes-will-beps-actions-8-10-bring-to-transfer-pricing.html

Action 13: Country-by-country reporting

As part of Action 13 to re-examine transfer pricing documentation, the Slovak Republic signed along with thirty other countries a document on automatic exchanging of information – “Country-by-country (CbC) reporting” on 28 January 2016. CbC reporting rules apply to large multinationals with consolidated annual turnover above €750 million. These multinationals will annually report information to the relevant tax authority in their Member State. The tax authorities in the Member States will then automatically exchange this information on the global allocation of income, profits, capital, employees and property, and also information about taxes paid. These CbC reporting rules should enable tax authorities in these Member States to detect easier any discrepancies in the multinationals’ transfer pricing as well as any related tax evasion.

Action 14: Make dispute resolution mechanisms more effective

The main objective of this action is to develop solutions to address obstacles that prevent treaty-related disputes under the mutual agreement procedure (MAP), including the absence of arbitration provisions in most double-taxation treaties and the fact that access to MAP and arbitration may be denied in certain cases.

The Slovak Republic has concluded effective double taxation treaties with 65 partners. The Slovak Republic is striving to renegotiate its treaties to meet the latest requirements.

Action 15 – Develop a multilateral instrument

94 countries are involved in this activity. A multilateral instrument is a more effective tool for renegotiating existing bilateral double taxation treaties (there are currently around 3,000 treaties in force around the world) than to update these treaties separately and bilaterally.

The multilateral instrument is a legal multilateral treaty which can modify articles in bilateral treaties outlined in the following Actions:

Ø  Action 2 (provisions on hybrid instruments and provisions arising from potential problems in applying the exemption method)

Ø  Action 6 (minimum standard on preventing treaty abuse)

Ø  Action 7 (Article 5, Paragraphs 4, 5 and 6 to prevent the artificial avoidance of permanent establishment status)

Ø  Action 14 (Article 25 in order to implement minimum standards for efficient dispute resolution and new provisions on arbitration)

The Slovak Republic intends to accede to the multinational instrument at a time relative to the current legislative process.

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An Italian MNE that is required by law to prepare consolidated financial statements, that has consolidated annual revenues of EUR 750 million or more in the fiscal year prior to the reporting period, and that is not controlled other than by individuals must file a CbC report with the Italian Tax Authorities.

The reporting obligation is extended to subsidiaries resident in Italy for fiscal purposes, part of multinational companies that meet the conditions set forth in the law, if the ultimate parent company required to prepare consolidated financial statements is resident in a state that:

– has not introduced the obligation to file a CbC report;

– does not have an agreement in force with Italy for the exchange of information related to the CbC reporting; or

– fails to fulfil its obligation to exchange information relating to the CbC report.

The CbC report must be filed annually and must include specific financial data covering gross profit, taxes paid and accrued and other key indicators of effective economic activities by territory.

According to the OECD’s recommendations, the first CbC report should cover fiscal years beginning on or after January 1, 2016 and the submission deadline should be either the filing date of the relevant tax return, or within 12 months from the end of the reference year (for companies with calendar year reporting periods, the deadline would be December 31, 2017, for the report relevant to fiscal year 2016).

Failure to provide the report or providing an incorrect or incomplete report will trigger penalties ranging from EUR 10.000 to EUR 50.000.

Further details covering the effective date, specific content, filing requirements and methods and other procedural terms and conditions to be followed in relation to CbC report will be provided in a Decree to be issued by the Ministry of Economic Affairs and Finance within 90 days of the effective date of the 2016 Finance Act.

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Action 2: NEUTRALISING THE EFFECTS OF HYBRID MISMATCH ARRANGEMENTS

There are a lot of qualification conflicts, when a different assessment of a taxable entity participating on cross-border transactions or a different assessment of substance of the transaction results in double non-taxation. For example, a payment, which is admitted like a tax eligible interest in one contracting state, while it is exempt from tax as a paid out dividend in another state.

Since 1.5.2016, there is a rule in the Czech Republic that the parent company cannot apply the exemption of received dividends in the case that the dividends can reduce the taxable amount. This limited condition will be spread to the sale of shares in the parent company as a consequence of the amendment’s proposal.

Action 3: DESIGNING EFFECTIVE CONTROLLED FOREIGN COMPANY (CFC) RULES

CFC rules say that the profits of a daughter company established in the country with a lower level of taxation could be taxed by the parent company, as if it had been the profits of this parent company.

There is no right for exemption from income tax from the dividends and income from the transfer of incoming shares by the parent company, if the parent company:

·        is established in a country out of the EU, which is not contracted about limiting double taxation

·        is subject to income tax, whose tax rate is lower than 12 %

It is enough for this limitation to apply if the parent company has 10 % of the subsidiaries share.

Action 4: LIMITING BASE EROSION INVOLVING INTEREST DEDUCTIONS

According to the national measures of the majority of European states, the interest deductibility is limited only to interest paid to the related party, while the limit of this exemption is set with regard to the ratio between the debt and one’s own capital. The limit is set to the ratio of 4:1 in the Czech Republic.

The rule proposed by the OECD would be applied to the interest paid to the unrelated party. The tax eligibility limit should be set on the ground of the ratio of the interest to EBITDA (10-30%). The new rule would be applied to a higher number of companies. Its exercise should be influenced not only by the amount of the debt, but also by the changes in the interest rate.

In time of economic growth, which the Czech Republic is now going through, this is a question on what influence should this rule have on the willingness of companies to invest into new projects.

Action 5:  COUNTERING HARMFUL TAX PRACTICES MORE EFFECTIVELY

The provision regarding the automatic exchange of tax resolutions and assessments of transfer pricing was included into the law on the national cooperation for the purpose of limiting the harmful influence of the unilateral assessment of transfer pricing.

Action 8-10: ADAPTATION OF TRANSFER PRICING TO ECONOMIC ACTIVITIES

The Czech Republic has a main principle of market distance, which is anchored in the Act on Income Tax and interprets the basic standards through methodological guidelines.

Since 1.1.2015 (for first time for the year 2014), there is an obligation to fill out an annex about a transaction with related party together with a tax statement. The Czech tax authority uses the data from this annex to choose which risky subjects to control. One of the risk criteria is the amount of the licence fees paid out of the EU.

The Czech Republic has no provision in its tax rules at this time, which can stop the movement of assets (intellectual property or patents) into countries with a more profitable tax system. The Toll Manufacturer or Contract Manufacturer became Full Fledged Manufacturer in the last few years, who invested into research and development.

It is a question, if the exit taxation should be applied during the change of function profile, when parts of the product’s chain are moved into the countries with a lower tax rate. The motivation for this movement could be not to the lower tax rate, but to save on the product’s costs because of cheaper labour. The issue of the movement of valuable assets and their taxation abroad, in considering of growing wages and failing labour, might become significant in the Czech Republic.

The same rule is often used during tax controls on the content level, not on the level anchored in the tax system. The transactions between the controlled entities are verified, where the economic activities are really carried out and not during the contractual arrangement between the parties of the transaction.

Action 13: COUNTRY-BY-COUNTRY-REPORTING

The directive, DAC4 implementation, will be realised with the amendment about international cooperation during tax administration, which will be valid from the 5^th of June 2017.

The obligation to submit a notification to the tax administration, which contains the report according to the countries, will apply to the multinational group with their consolidated turnover of more than 750 million EUR, for the first time for the financial year starting 1.1.2016. That period for the submission will be 12 months from the end of the financial year.

The obligation of the submission will apply to:

·        the highest parent company

·        the representative member-company

·        the Czech member-company, and only in case when the public system of the automatic exchange of information fails

The notification will be submitted in a standardised form, which will have 3 parts and will contain:

·        the summary information about a group in relation to each country

o   the income

o   the results before taxation

o   the paid tax

o   the current tax

o   the registered equity

o   the accumulated result

o   the number of employees

o   the assets value

·        the information about the member-entities and their activities

·        the specification of the data source

For any breaches of the submission of the obligation, the highest parent company will pay a penalty of 3 000 000 CZK.

The notification submitted by the Czech entities will be the subject of automatic exchange of information.

Action 14: MAKING DISPUTE RESOLUTION MECHANISMS MORE EFFECTIVE

About 20 cases were solved according to the contract of double-taxation or according to the Arbitration Convention in 2015. No case was provided to the Advisory Commission.

The Czech Republic has concluded 86 valid contracts about the avoidance of double-taxation up to 24.8.2016 and has been discussing the existing contracts to be able to comply with the requirements. However, none of these existing contracts includes Article 25(5) about the Arbitration, which would guarantee the value reaching the avoidance of double-taxation in case of transfer pricing adjustment. The Czech Republic will observe the experience with the arbitration, it does not count on its implementation.

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