Digital services tax approval on the horizon
After more than a one-year break, the government's bill on digital services tax has moved on to the next phase of the legislative process. The final third reading in the Chamber of Deputies, which will also vote on all motions to amend the bill made in the second reading, will probably take place in the first half of June. The bill will then be debated by the Senate.
During the second reading, the deputies proposed several amendments to the bill. From these, the budget committee only recommended the reduction of the rate from 7% to 5% for approval. All the remaining motions, including the proposal to postpone the effective date to 1 January 2022 or 2023, will be voted on within the third reading at the June session. Unless otherwise approved, the act should enter into effect 15 days after its promulgation in the Collection of Laws.
The bill introduces a digital services tax on:
- targeted advertising campaigns
- the use of multifaceted digital interface
- the provision of user data.
Taxable services are those provided through a digital interface. Any software (e.g. website or application) accessible to users shall be considered a digital interface. A user shall be any legal and natural person or entity without legal personality accessing the digital interface using a technical device. For the service to be taxable, it must be provided through a technical device located in the Czech Republic. To determine this, the localisation of the device’s IP address will be the primary indication. For each of the above mentioned groups of services, a partial tax base will be calculated, based on the extent to which the taxable service is provided in the Czech Republic.
To determine the taxpayer, all of the following three criteria must be met: The first criterion is that the company belongs to a multinational group with a total annual turnover of at least EUR 750 million.
The second criterion is a significant digital presence in the Czech Republic. This criterion shall be fulfilled if the multinational group’s total revenue from taxable services provided in the Czech Republic exceeds CZK 100 million for the relevant period. The bill also sets a minimum threshold for the taxation of digital services: for targeted advertising and providing user data, the total remuneration for the individual type of service provided in the Czech Republic must exceed CZK 5 million; the use of a multilateral digital interface will be subject to taxation if the number of user accounts on that interface exceeds 200 thousand.
The third criterion is the amount of taxable services provided by a multinational group in the EU and EEA, which must exceed 10% of the group’s total turnover. Companies that belong to groups that meet the first and second criteria but do not become payers due to not meeting this criterion will only have a reporting duty.
The taxable period shall be a calendar year. Registration with the tax administrator must be made within 15 days from the date of effecting the first taxable service. After that, the entity will become a payer and will be obliged to pay monthly advances. To determine the fulfilment of the conditions for registration and the amount of advances in the first taxable period, a ‘relevant’ period has been set: the last accounting period for which the entity’s financial statements have been prepared preceding the first day of the taxable period. Digital services tax payers will be obliged to keep records, in the structure necessary for preparing the tax return, and separately for individual taxable services.
The act assumes that in the future, agreement on the principles of taxation of the digital economy will be reached on EU and OECD levels. The application of the act is thus to be limited in time, with 2024 being the last taxable period in which the act should apply.