Clearer outline of tax on selected digital services

The Ministry of Finance has prepared a digital service tax bill, proposing a tax rate of 7% on selected digital services. Entities liable to this tax will be companies included in corporate groups having a worldwide turnover of more than EUR 750 million and generating an income of more than CZK 50 million from selected digital services in the Czech Republic.

A 7% tax should be charged on income from selected digital services provided for consideration in the territory of the Czech Republic. According to the bill, such services will involve the performance of targeted advertising campaigns, the use of multilateral digital interfaces (websites or mobile applications), or the sale of user data. The tax would be imposed on companies included in groups with a consolidated turnover exceeding EUR 750 million, whereas this limit represents the group’s total turnover irrespective of whether it was generated from digital services. At the same time, the appropriate company’s turnover generated from digital services in the Czech Republic must exceed CZK 50 million. The bill defines digital services based on the EU directive currently in preparation. The law would thus affect not only multinational digital corporations but also companies meeting the limit of EUR 750 million turnover from other activities and income of more than CZK 50 million from digital services in the Czech Republic.

The vital criterion for imposing tax on digital services in the Czech Republic will be the place of registration of a computer’s or mobile phone’s IP address; it will not be the service recipient’s registered office address used for invoicing. If a targeted ad is viewed from an IP address registered in the CR and the advertising service is subsequently invoiced to the foreign entity that has contracted the ad, part of income from this advertising will be subject to tax in the CR. The specific part of income will depend on the share of Czech entities (i.e. IP addresses registered in the CR) that have seen the ad. Similar rules will also apply to the intermediation of business via multi-purpose interfaces as well as to the sale of user data. Decisive will always be whether at least one entity for which a transaction was intermediated was a Czech entity or whether the data sold were generated by Czech users.

The Specialised Tax Authority will be the digital tax administrator. The taxable period for digital tax will be a calendar year. Digital tax returns will always have to be filed by the end of March of the following year.

To determine whether a company, either Czech or foreign, will actually be liable to digital tax and ensure all data to fulfil the new duty will be quite a difficult task. The bill is now awaiting its comment procedure, then it will be submitted to the government.


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