Deputies do not approve digital tax

In the just-ended parliamentary term, the Czech Chamber of Deputies did not approve the bill on a digital service tax. Hence the bill would have to go through the entire legislative process again should the new government want to introduce a digital tax. However, this does not seem likely given the agreement reached on new international taxation rules at the G20 level, since it also includes a commitment by participants not to apply or introduce new digital taxes.

The government submitted the digital services tax bill to the deputies in 2019. The new tax was to apply to income from targeted advertising and income from the sale of data where the source of the income was a Czech user using a digital interface operated by a foreign company. The tax was also to apply to foreign platform operators’ income generated from the mediation of sales of goods or services in the Czech Republic. The bill passed through its first and second readings but ran out of time before the third reading.

Thus, the relevant law will have to go through the entire legislative process again should the new government want to introduce this or a similar digital tax. However, this does not seem very likely at present. A joint declaration of 136 countries including the Czech Republic, associated under the OECD’s Inclusive Framework (also including non-OECD members) contains a commitment not to apply or introduce digital taxes in the period from 8 October 2021 to 31 December 2023 or until the entry into force of a binding agreement negotiated between the participants in the declaration. This binding agreement will allow for the reallocation of taxing rights on a portion of the profits of the largest multinational groups of companies to the countries of sale of services or goods, regardless of their physical presence. In essence, it is therefore a kind of digital tax, notwithstanding a shift during the negotiations between the parties: the new new rules will apply depending on the size and profitability of the corporate group regardless of the business sector, i.e., even outside the digital sector. We provide more details on this area in a separate article.

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