On May 22, the US House of Representatives passed a bill with the unusual title of the One Big Beautiful Bill Act (OBBBA).
Among other things, this law contains retaliatory measures against tax regimes of other countries that the US government considers to be “unfair” towards US companies.
For the Czech Republic, it is significant that the US considers the Undertaxed Profits Rule (UTPR) contained in the new Act on Top-Up Taxes to be an unfair tax regime. This regime has been in force in the Czech Republic since this year.
For jurisdictions with the UTPR regime in place for US companies, the retaliatory measures increase withholding taxes on interest, royalty or dividend payments from US residents by five percent each year for four years (a total of 20 percent).
It is important to note that the increase will not be affected by any double tax treaties in place. If a treaty states, for example, a maximum five percent withholding tax on dividends, this reduced rate will increase by five percent each year up to 25 percent.
If the OBBBA takes effect, Czech companies face a significant increase in their tax burden for payments from their US subsidiaries or business partners.
The act still needs to be approved by the US Senate. At the same time, discussions are also ongoing between representatives of the OECD, the G7, and the United States regarding the application of the UTPR rules to US companies with a view to reaching some sort of compromise. Recent developments indicate a positive shift in these discussions.