CNB’s measures and their implications

The Czech National Bank (CNB) has opted to decrease basic interest rates effective from 17 March 2020. From a tax perspective, the most important decrease is the lowering of the repo rate by 50 basis points to 1.75%. This rate is decisive for setting interest under the Tax Procedure Code, arising from relationships between taxpayers and the tax administrator.

Implications for the Tax Procedure Code 

The amount of default interest corresponds to the annual repo rate set by the CNB valid for the first day of the calendar half-year, increased by 14 percentage points. The repo rate as at 1 January 2020 was 2%. Interest determined pursuant to the Tax Procedure Code is calculated as the repo rate (2%) + 14%.  

If the current repo rate were to remain in effect until 1 July 2020, the default interest for the second half of this year under the Tax Procedure Code would be calculated as the repo rate of 1.75% + 14%.   

However, the calculation of default interest will be affected by an amendment to the Tax Procedure Code, which will harmonise the system of default interest with the Civil Code, setting default interest at the repo rate + 8%. The amendment will also repeal the calculation mechanism using the rate effective at the beginning of a given half-year. The new default interest amount will start to apply from the date the amendment enters into effect, i.e. on the fifteenth day of its promulgation in the Collection of Laws.  

The amendment is currently awaiting its approval in the Chamber of Deputies after being discussed by the Senate on 18 March and referred back to the chamber with amending proposals. It can be expected that deputies will re-confirm the version they passed originally in their April session, and that it will be promulgated in the Collection of Laws after being signed by the president.  

CNB’s view on commercial issues 

Considering the current situation, the CNB expects that banks will refrain from paying out dividends until the pandemic’s imminent and long-term aftermaths subside.  

Generally, the CNB does not set rules for commercial banks on how to recover and manage their loans. However, it highlights that where temporary failures to pay debt occur as a result of the coronavirus and any related measures, the deferral of instalments is the right method to ensure the repayment of the entire outstanding amounts in the future. 

Sdílet článek