Where to, income tax?

The Ministry of Finance has recently published a document called Summary of Innovative Solutions Regarding the Taxation of Income and the Payment of Related Statutory Insurance, which is in principle a first theoretical and conceptual plan for the new Income Tax Act. The document does not include specific motions to amend the existing law but indicates (at least for now) some paths that could be followed in this tax area. The ministry’s declared intention is to modernise, simplify and clarify the respective legal regulation and strengthen the tax neutrality principle.

The document shows that taxpayers may theoretically expect some simplifications and novelties. Worth mentioning are, for example:

• division of the income tax legal regulation into two separate acts;

• decrease in the number of depreciation categories to three plus the introduction of pool depreciation by type of asset;

• simplification of the definition of technical improvements: the ministry has put forward a revolutionary motion to stipulate the percentual threshold values of input cost to efficiently distinguish between repair and reconstruction, thus removing endless speculation in this respect. The threshold values would help decide what changes (i.e. potential repairs) can be regarded as technical improvement;

• a much-discussed exit tax: the ministry is not opposed to applying this tax in a scope larger than required by EU legislation;

• an attempt to remove conceptual inconsistencies of the current regulation, for example, an attempt to clearly define whether a certain tax regime can only be applied to a Czech concept or whether it can also be applied to its foreign equivalent.

However, the ministry’s plan for now does not reflect any of the Common Consolidated Corporate Tax Base harmonisation approaches currently proposed by the European Commission for consultation before the European Parliament.

According to the ministry’s current timetable, taxpayers ought to see the new income tax legislation in 2019. It is to become effective in 2020. In the same year, the ministry also intends to introduce the self-assessment principle (according to which taxes will be immediately and automatically assessed in the amount in which they were declared in income tax returns, for example, making the quicker refund of overpaid tax possible). The new Income Tax Act is still at a very early stage of its development and certainly faces a long way ahead before its final wording.