17 January 2018

News in international tax cooperation

We have seen many changes in international tax cooperation in recent years, especially in the area of multilateral instruments. 2017 introduced a few novelties in bilateral double taxation treaties. An overview of the changes in these treaties relating to 2017 and 2018 is shown below.

Luděk Vacík
Lenka Fialková

A double taxation treaty between the Czech Republic and Chile (published under No. 5/2017 of the Collection of International Treaties) has been in effect since early 2017. An interesting situation occurred in December 2017. Pursuant to the most favoured nation clause contained in Article 11 of this treaty, a withholding tax on interest applied in the Czech Republic and Chile decreased effective from the beginning of 2017, as both countries agreed in the treaty that if Chile negotiates better contractual terms and conditions any time in the future with any other state, such conditions will also apply to Czech-Chilean relationships. In 2017, Chile entered into a treaty with Japan, agreeing on a 4% withholding tax on interest. Consequently, this rate will also apply to Czech-Chilean relationships, in contrast to the originally agreed 5% tax rate.

In 2017, a tax information exchange agreement between the Czech Republic and Belize entered into effect (under No. 62/2017 Coll. of Int. Treaties). Belize thus became the thirteenth state with which the Czech Republic has concluded a tax information exchange and tax cooperation agreement. A list of these countries is provided here.

The Czech Republic ratified a bilateral tax treaty with Turkmenistan (Chamber of Deputies’ Print No. 805). It is not yet known whether Turkmenistan has also done so, making it possible for the treaty to come into effect as early as from the beginning of 2018.

In June 2017, an instruction on the application of a treaty between the Czech Republic, Serbia and Montenegro was published. The Serbian-Montenegrin tax administration draws attention to a new form, in which Czech tax residents must confirm their tax residence to claim reliefs in Serbia.   

The Act on International Cooperation in Tax Administration was amended three times in 2016–2017 because of multilateral conventions or EU directives with an impact on EU member states or third countries. The Foreign Account Tax Compliance Act has also been included in the law. Up-to-date information about the automatic exchange of information among tax administrations is summarised in the Ministry of Finance’s Information.

The automatic information exchange involves the exchange of information about balances on accounts provided by banks and other financial institutions as well as information about tax non-residents (employment income, income from real property, dividends, etc.), binding rulings issued by tax administrations or country-by-country reports. Another novelty with global impact is the application of certain changes to bilateral double taxation treaties through the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI), planned to be in effect from 2019. In the future, all bilateral tax treaties will have to be read in the context of this multilateral instrument, monitoring what provisions apply to the Czech Republic and a particular country with respect to specific tax situations.


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