In July, the OECD published details on the content of the top-up tax information return, and additions to the administrative guidance. The Czech Ministry of Finance then published the outcome of the comments filed during the comment procedure and submitted a modified version of the law for the government's deliberation. Here is an overview of the key points of these documents.
Top-up tax information return
The OECD document contains a detailed description of the structure of the top-up tax information return in the form of data inputs. This is the data that corporate groups will need to obtain and provide.
The top-up tax information return will have three basic parts:
- information on the multinational group and individual companies and permanent establishments from the model rules perspective
- overview of safe harbours and exemptions applied at various jurisdictions
- calculation of the effective tax rate (including detailed information on deferred tax), calculation and allocation of top-up tax for individual constituent entities and jurisdictions.
For taxable periods beginning no later than 1 January 2028 and under certain conditions, it will be possible to file a simplified top-up tax information return for jurisdictions that either do not report top-up tax or do not need to allocate top-up tax to multiple constituent entities. A more detailed commentary on the top-up tax information return is provided here.
OECD administrative guidance
The second part of the administrative guidance (the first part was published in February 2023) adds to and modifies the commentary on the model rules from February 2022. The document focuses mainly on the following areas:
- rules on qualified domestic top-up tax (QDMTT)
- safe harbour for qualified domestic top-up tax (QDMTT Safe Harbour)
- new temporary safe harbour for undertaxed payment rule (Transitional UTPR Safe Harbour) - the jurisdiction of the ultimate parent entity with a nominal tax rate of 20% will be deemed to have profits sufficiently taxed unless the jurisdiction has introduced model rules
- additional guidance on tax credits
- additional guidance on currency conversion
- additional guidance on substance-based income exclusion.
A more detailed commentary on the second part of the administrative guidance is available here.
Bill on top-up taxes
The processing of the comments resulted in some changes and wording modifications as well as argumentative confirmation of the existing wording. This has led to the following alterations:
- The obligation to register for top-up tax (domestic and allocated) has been deleted.
- The explicit provision that the obligation to file a top-up tax return does not arise if the top-up tax liability does not arise has been added.
- An exemption for taxpayers regarding their obligation to file a top-up tax information return on the domestic top-up tax if this information return for the given reporting period was filed by another payer of domestic top-up tax has been added.
- The particulars of the top-up tax information return will be laid down in a decree.
- It has been confirmed that tax credits resulting from investment incentives and R&D allowances will remain under the regime of unqualified tax credits with the potential to reduce the effective tax rate.
- Pension companies are excluded entities.
- The impossibility of using a safe harbour based on CbC reporting shall only apply to multinationals, not large national groups.
- The bill now clarifies that a deferred tax asset resulting from a loss that has not been recognised for prudential reasons may be treated as a tax-deductible expense in the subsequent utilisation of the loss.
The bill should now be discussed by the government. However, it is not yet clear how and in what timeframe the changes resulting from the second part of the administrative guidance and the top-up tax information return will be incorporated.