Government approves draft amendment to Act on Top-Up Taxes: 15 key changes

We already reported on the development of the amendment here and here. Below, we summarise 15 selected changes to the draft amendment that have been approved by the government:

1. Instead of a taxable period, a reporting period shall be used, i.e., the period for which the consolidated financial statements are prepared. If the constituent entity’s accounting period or taxable period for the tax concerned differs from the reporting period, for top-up tax purposes, data shall be allocated to the reporting period in the manner used for the preparation of the consolidated financial statements.
2. The amendment specifies which revenues from the consolidated financial statements shall be relevant for determining the threshold of EUR 750 million. The threshold is vital for determining which corporate groups are subject to the top-up tax.
3. The definition of a tax credit has been clarified: it means a credit with a direct effect on the tax liability (a discount, bonus). Deductions from the tax base (allowances), accelerated depreciation charges, and similar items shall not be considered tax credits for the purposes of the top-up tax although they also reduce the effective tax rate. A refundable tax credit is one that is paid to the taxpayer in cash. If it is paid within four years of its origination, it is a qualified tax credit that shall not reduce the amount of tax for the purposes of calculating the effective tax rate and will be included in the calculation of qualifying gain or loss (essentially, it shall be treated as a subsidy whereby the tax credit shall be added to the tax payable and at the same time increase the qualifying gain). Other refundable and non-refundable tax credits shall reduce the effective tax rate.
4. Following the model rules, adjustments have been made to the definition of decisions (one-off, short-term, medium-term, and long-term) which shall only be made within the top-up tax information return and not in a separate filing.
5. Currency conversion rules have also been clarified. All calculations of top-up tax shall be made in the currency in which the accounting records are kept for the purposes of the consolidated financial statements (the reporting currency). To convert amounts determined in another currency to the reporting currency, the same method as in the preparation of the consolidated financial statements shall be used. Subsequently, for the purposes of tax payment and administration, the amounts calculated in the reporting currency shall be converted into the Czech currency at the foreign exchange market rate announced by the Czech National Bank for the last day of the taxable period. Where the law stipulates a condition that is based on an amount expressed in euros, to assess (compliance with) that condition, the amounts in the reporting currency shall be converted to euros at the average exchange rate announced by the European Central Bank for the month of December preceding the reporting period.
6. A medium-term decision on the inclusion of all profit shares shall be introduced. If this option is used, qualifying profit or loss shall not be adjusted for excluded profit shares.
7. The amendment clarifies the definition of an investment fund, replacing the condition of "a large number of investors" by the condition of "at least two investors".
8. The possibility of using the medium-term decision on the application of the taxable profit split method for investment entities is to be extended to insurance investment entities.
9. The amendment extensively regulates the transitional safe harbour rule deriving from the information contained in country-by-country reports. This follows the OECD's Safe Harbours and Sanctions Relief and Methodological Guidance from December 2023.
10. A permanent safe harbour rule based on simplified calculations of routine profits, de minimis (revenue and profit), and the effective tax rate has also been added. However, it should only be possible to apply these safe harbours in relation to non-material constituent entities (i.e., those not included in the consolidated financial statements and whose revenue does not exceed EUR 50 million).
11. Joint ventures can now use all types of safe harbours.
12. The explanatory memorandum emphasises the finance ministry’s priority to ensure the qualified status of the Czech top-up tax and thus let the Czech top-up tax meet the safe harbour rules. For this reason, the draft amendment:
    - extends the range of payers of Czech top-up tax to joint ventures and their affiliates (a joint venture group), stateless (not resident in any state) main entities whose activities are carried out in the Czech Republic provided that these activities can be taxed in the Czech Republic under the relevant international treaty, and tax transparent entities established under Czech law that are not resident in any state. 
    - defines a sub-group as a set of entities for which the calculation of the effective tax rate and jurisdictional top-up tax is made separately from other taxpayers (i.e., not jointly within one jurisdiction).
    - removes the option to choose a different standard for Czech top-up tax purposes than the one used in the calculation of the allocated top-up tax; the rules on the use of the accounting standard will be based on the rules for the allocated top-up tax as per the model rules.
13. The deadline for filing tax returns for the allocated and Czech top-up tax has been unified to 22 months from the end of the reporting period (i.e., for the calendar year 2024, it will be 31 October 2026).
14. The deadline for filing information returns for the allocated and Czech top-up tax is 15 months from the end of the reporting period, 18 months in the case of the first-time period. The deadline for filing the information returns for the first-time period of calendar year 2024 is thus 30 June 2026.
15. A new option regarding the information obligation for the Czech top-up tax has been introduced: the obligation can be met by filing an information return on the allocated top-up tax if the return contains the essential information as required for the information return on the Czech top-up tax and if the taxpayer