Government approves digital services tax
The government submitted a bill introducing a 7% digital services tax to the Chamber of Deputies. The tax will apply to companies that are part of corporate groups generating a turnover of more than EUR 750 million and with a tax base relating to taxable digital services rendered in the Czech Republic exceeding CZK 100 million. The government expects that the act will enter into effect in mid-2020.
The bill divides taxable services into three basic groups: the performance of targeted advertising campaigns, the use of multilateral digital interfaces, and the provision of user data. Taxable services are services provided via a digital interface, i.e. any software such as a website or an application accessible to users. The user is any legal entity or an individual or a unit without legal personality, accessing a digital interface using technical equipment. Where such services are rendered via technical equipment located in the Czech Republic, the provision of such services is treated as taxable, giving rise to a tax liability. A primary clue is the location of the equipment’s IP address.
The provision of a targeted advertising campaign shall mean the placement of a targeted campaign on a digital interface and the provision of accessory services. The use of a multilateral digital interface shall mean allowing for the conclusion of a transaction among multilateral digital interface users to facilitate the delivery of goods, the provision of services, or the mere provision of user access to a multilateral digital interface. The provision of user data shall mean the provision of a set of data on users collected or created based on their activity on digital interfaces. A partial tax base will be calculated for each individual group of services while focusing on the extent to which the taxable services are provided in the territory of the Czech Republic.
The bill specifies a minimum threshold for the taxation of specific digital services. For the provision of targeted advertising campaigns and the provision of user data, the sum of payments for a particular service rendered in the Czech Republic must exceed CZK 5 million. The use of multilateral digital interfaces will be liable to digital services tax if the number of user accounts on the interface exceeds 200 thousand. Corporate groups whose sum of payments for taxable services rendered in the EU member states, Switzerland, Norway and Island accounts for a maximum of 10% of their total revenue from these states should be excluded from the law’s applicability. The bill also determines other exceptions.
The taxable period shall be the calendar year. After registration, taxpayers will have to pay monthly instalments and keep records of their digital services, sorted by individual deliveries of taxable services as needed for the preparation of tax returns.
The law should be in harmony with the digital economy taxation principles within the EU and the OECD. Its applicability will be time-restricted: the last taxable period when the law should apply will be 2024.