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Update on Czech and global top-up taxes

At the end of 2023, the law on top-up taxes for large multinational and national groups implementing the EU directive on global minimum tax entered into force. From taxable periods beginning after 31 December 2023, companies and permanent establishments of groups with consolidated revenues exceeding EUR 750 million shall be subject to new taxes at a rate equal to the difference between the 15% rate and the specifically calculated effective tax rate of the group in the Czech Republic.

The act introduces two entirely new taxes that have their own rules different from those of the income tax, have a global overlap, and are calculated at the level of the entire group in the jurisdiction. For more information, see the article here.

News from the Czech Republic

Last December, the expert community discussed whether the transitional safe harbour rule based on the information contained in the country-by-country report (CbCR) could be applied for the purposes of the national (Czech) top-up tax. In this respect, the Ministry of Finance informally stated that the safe harbour rule should transitionally apply to the Czech top-up tax, i.e., that the Czech top-up tax will be zero as a result. Therefore, the original information that this safe harbour can only be used for the purposes of the income inclusion rule should not apply.

Global news

In December 2023, the OECD published further administrative rules on the application of top-up taxes, and the European Commission published a document with answers to frequently asked questions. Below is a summary of the key points from these documents.

OECD administrative guidance

The third part of the administrative guidance (the first part was issued in February 2023, the second part in July 2023) contains further additions and revisions to the Commentary to the Model Rules of February 2022.  The document primarily clarifies the application of the transitional safe harbour rule. It also contains additional guidance on the following:

  • adjustments to the amounts in the qualified financial statements relating to purchase price adjustments
  • more detailed comments on the transitional CbCR safe harbour, including the definition of qualified financial statements, the determination of a simplified effective tax rate, and the introduction of new anti-avoidance rules
  • clarification of the definition of consolidated revenues for the purposes of determining the €750 million threshold, and addressing the mismatch between the taxable periods of the ultimate parent and the constituent entities or between taxable periods of individual constituent entities
  • allocation of CFC taxes where the group is not required to calculate the effective tax rate in a given jurisdiction
  • reporting deadlines for groups with a short taxable period
  • simplified calculation of safe harbour rules for non-material constituent entities.

More detailed information can be found here. Our comments on the first part of the administrative guidance are available here and on the second part here.

European Commission’s answers to frequently asked questions

The European Commission’s document contains an overview of frequently asked questions and answers concerning the interpretation and transposition of the EU directive introducing Pillar 2 (global minimum tax) rules. It contains six questions on the general application of the directive, and 87 questions on the individual articles of the directive. An overview of the most common questions and answers is available here.

The European Commission has stated on its website that this document represents the result of the commission service deliberations and should therefore not be interpreted as binding upon the European Commission or the individual EU member states.