The financial administration has published answers to questions about the windfall tax, which is to be applied from 2023 to 2025. Below we summarise the most important conclusions.
Taxpayers and general enquiries
The origination of tax liability is assessed separately for each taxable period. The basic condition is generating relevant income of at least CZK 50 million for taxable periods that at least partially fall within the windfall tax’s period of application. For instance, if a taxpayer’s fiscal year is 1 April 2022 to 31 March 2023 and the basic condition has been met, they shall file a windfall tax return for the period; however, the tax base shall be constructed only for the proportional part that falls within the period of windfall tax application, i.e., from 1 January 2023 to 31 March 2023.
To define the group of taxpayers with windfall profits, the total relevant income shall be calculated for all members of the group, including where the parent company is located abroad. Relevant income will include income of the Czech company (except for foreign income that may be taxed abroad under an international tax treaty) and income of the foreign company taxed in the Czech Republic (note: a corporate group is viewed as a group with windfall profits if the total relevant income for windfall tax purposes of taxpayers who are part of the group reached at least CZK 2 billion for the first reported accounting period ended after 1 January 2021).
The financial administration’s information further states that:
- Windfall tax is not subject to a special registration procedure.
- Relevant income does not include income from gas storage and re-billing of energies by lessors to lessees.
- A windfall tax return shall be filed within the same deadlines as an income tax return even if the taxpayer declares a zero tax liability.
- Windfall tax is not a tax-deductible expense, and it is not possible to apply discounts against it that the taxpayer has not used for corporate income tax purposes.
Windfall profits tax base
When calculating average adjusted comparative tax bases, the taxpayer shall determine the comparative tax base for each taxable period that began on or after 1 January 2018 and ended on 31 December 2021. The comparative tax base shall be further increased by the absolute value of 20% of that tax base, to arrive at an adjusted comparative base for the relevant period (e.g., a loss of CZK 800 thousand will be reduced to CZK 640 thousand for the purposes of the calculation). From these adjusted comparative tax bases, the arithmetic average shall be then calculated.
Where the comparative tax base is determined for a period with a length different than that of the tax base being compared, it shall be recalculated pro rata as if it had been determined for a period of the same length as that of the tax base being compared. The document contains a practical example of how to approach the calculation.
If the conditions for transferring average adjusted comparative tax bases within a group are met, it is possible to:
- make transfers from one payer to multiple payers of windfall tax within the group;
- make transfers to one payer from multiple payers of windfall tax within the group.
- The notification of transferring the average adjusted comparative tax bases shall be submitted by the representative taxpayer via a form integrated into the EPO application.
The subject of a binding assessment (submitted to the Specialised Tax Authority) is whether the taxpayer is part of a corporate group with windfall profits together with another taxpayer in a certain taxable period. A fee of CZK 10,000 per a binding assessment covers an assessment of each one relationship between a pair of taxpayers, meaning that the number of fees depends on the number of facts being assessed, not on the number of applications.
Windfall tax prepayments
Windfall tax is paid in prepayments, and the same provisions that govern income tax prepayments shall apply, i.e., prepayments are based on the last known tax liability.
Only the prepayments for the first period, i.e., from 1 January 2023 to the last day of the deadline for filing the first tax return (e.g., 1 July 2024 for taxpayers with a calendar year taxable period), are regulated separately. In the first prepayment period, prepayments shall be based on the amount stated by the taxpayer in the fictitious tax notice for 2022. The first prepayment due date shall be 15 September 2023; however, prepayments whose maturity was postponed to 15 September 2023 from 15 March 2023 and 15 June 2023 shall also be due on this date.
In a separate document, the financial administration has published the answers of the Czech Statistical Office to its questions regarding the classification of selected activities for the purposes of windfall tax.