Czech reporting of cross-border transactions
The Ministry of Finance has submitted a draft amendment to tax legislation for 2020 for comments. The amendment includes, among other things, the implementation of DAC 6 and the introduction of reporting duties relating to selected cross-border transactions, giving us a clearer idea what direction the Czech concept of cross-border transaction reporting should take.
The Czech implementation derives from the conditions and definitions set out in Directive on Administrative Cooperation (DAC) 6. The characteristic features (hallmarks) and the main benefit test will be regulated by a new decree of the Ministry of Finance; however, the definition of a cross-border arrangement will not be determined there. A stricter approach has been proposed regarding one hallmark: payments to related parties seated in jurisdictions with zero or very low taxation should always be reported, irrespective of whether the main benefit test has been met.
The reporting duty will affect not only cross-border arrangement intermediaries (typically various advisors but, under certain circumstances, also financial institutions or servicing companies within a group of companies) but also users themselves, i.e. taxpayers. The draft does not interfere with the confidentiality obligation applicable to tax advisors and lawyers under their chamber regulations. These will only have to inform their client that the client as the arrangement user must report such an arrangement themselves. Taxpayers will have to report cross-border arrangements in the extent in which other intermediaries do not report them, as they are bound by their obligation of confidentiality or were not involved in the implementation of such an arrangement.
Reporting includes information about arrangement intermediaries and users as well as details regarding met hallmarks, content and value of arrangements, and information about regulations and international treaties that form the basis of an arrangement. The Ministry of Finance will issue prescribed forms for this purpose. The deadline for making a filing will be 30 days of the earlier of the date an arrangement is available for implementation, the date an arrangement is ready for implementation, or the date the first step to implement it was made. The new reporting duty will apply retrospectively to all arrangements whose first implementation steps were taken after 25 June 2018. Information regarding arrangements reported on a retrospective basis should be filed by the end of August 2020.
The new reporting duty is also associated with a duty to archive related documentation over a period of 10 years. A penalty of up to CZK 1.5 million may be imposed for the violation of the duty to report an arrangement; up to CZK 500 thousand for the violation of the duty to archive relevant documentation. The same penalty amount may also be charged to tax advisors and lawyers for their failure to inform their clients about their duty to report.